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DOL Releases Its Final Rule Updating FLSA White-Collar Overtime Regulations

The wait is over! This morning, the Department of Labor announced its Final Rule, which is aimed at expanding overtime eligibility for millions of American workers. At its core, the final version of the rule doubled the minimum salary employers must pay “white collar” workers to maintain their exempt status. The final rule did not, however, make any change to the job duties test.

Over the course of this and next week, we will discuss the rule’s impact and address related workplace issues on which employers should focus in advance of the rule’s December 1st implementation date. For now, we’ll briefly summarize the key provisions from the rule.

Key Provisions of the Final Rule

  • More Than Doubles the Salary Threshold for White Collar Exemptions to $913 per week ($47,476 annually). The Final Rule establishes a salary threshold for the executive, administrative, professional, computer and outside sales exemptions at $913 per week or $47,476 annually.  This threshold doubles the current salary threshold ($455 per week or $23,660 annually), but is slightly lower than the threshold originally proposed by the DOL last July ($970 per week or $50,440 annually).

  • Increases the Salary Threshold for Highly Compensated Employees to $134,004 per year. The Final Rule establishes a salary threshold for highly compensated employees (HCE) at $134,004 annually.  The current threshold is $100,000 per year.  The Final Rule uses the same methodology from the proposed rule, but using updated Bureau of Labor figures, it increased the threshold from $122,148 per year.

  • Establishes a Mechanism for Automatic Updates to the Salary Thresholds. The Final Rule includes a mechanism for automatically updating the salary levels every three years to maintain the salary threshold at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region for white collar workers and the 90th percentile of full-time salaried workers nationally for HCEs. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.  The DOL will publish updated rates in the Federal Register at least 150 days before their effective date.  This is a significant change from the proposed rule, which would have updated the salary threshold annually.

  • Allows Employers to Use Nondiscretionary Incentive Compensation to Meet up to 10 Percent of the New Salary Threshold. Addressing a longstanding complaint from employers who pay employees on commissions or using other incentive compensation, the Final Rule amends the salary basis test for white collar workers to allow employers to use nondiscretionary bonuses, commissions and other incentive payments tied to productivity and profitability to satisfy up to 10 percent of the new standard salary level.  (This change does not extend to HCEs, however.) To receive credit for nondiscretionary bonuses and incentive payments toward the standard salary level test, Employers must make such payments on at least a quarterly basis.  This means that annual nondiscretionary bonuses will not count towards the threshold unless they are paid more frequently.  The Final Rule also permits the employer to make a “catch-up” payment to maintain the exemption if an employee does not receive enough in nondiscretionary bonuses and incentive payments in a given quarter to remain exempt.

  • No Changes to the Duties Test. In one win for employers, after seeking comment on the duties test in the proposed rule, the DOL did not make any changes to the actual tests in the Final Rule.

  • Effective Date of December 1, 2016.  In another win for employers, the effective date of the Final Rule is December 1, 2016, which provides employers additional time to evaluate the impact on their workforce and implement changes.

The DOL first announced these key provisions on its website, and then moments ago released the Final Rule in a document spanning more than 500 pages. We are still parsing through it and if there are any other important nuggets of information in there we will update you accordingly.  According to the DOL however, the Final Rule could extend the right to overtime pay to an estimated 4.2 million workers who are currently classified as exempt based on their job duties and salary level.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume VI, Number 139

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About this Author

Michael S. Arnold, Mintz Levin Law Firm, Labor Law Attorney
Member / Chair, Employment, Labor & Benefits Practice

Michael Arnold is Chair of the firm's Employment, Labor & Benefits Practice.  He is an employment lawyer who deftly handles a wide array of matters. His capabilities include counseling on everyday HR life cycle issues, defending management and senior executives in connection with employment-related proceedings, and assisting companies navigate the complex employment issues that arise in transactions.  Michael’s clients appreciate his strong emphasis on providing not just legal advice, but also practical advice, that aligns with organizational and HR strategies while...

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David Barmak, Employment Attorney, Executive Advisor, Mintz Law FIrm
Member / Chair Emeritus, ELB Practice

David is an experienced trial lawyer and trusted advisor to businesses and their executives with a focus on employment law and HR issues. He has litigated hundreds of cases in federal and state courts and arbitrations nationwide. David is devoted to helping clients accomplish their compliance, risk reduction, and employee relations objectives. David has written and lectured extensively on employment law, trial practice, and alternative dispute resolution, and is often quoted in the media.

As a trial lawyer, David has handled hundreds of cases covering issues such as employment discrimination, whistleblower and other retaliation, noncompetition agreements and trade secret issues, wage and hour (FLSA) compliance, class and collective actions, and employment contract disputes. Clients have also regularly looked to David to litigate disputes involving a broad range of non-employment issues, including contract, partnership, shareholder, technology, and outsourcing.

As a trusted advisor, David has helped clients across a broad array of industries to reduce employment practices risks, and adopt best practices relating to wage and hour laws, employee leave laws, internal investigations, dispute resolution policies and practices, non-compete and trade secret issues, employee training, personnel and other policies, and WARN Act issues and other matters. He also is frequently involved in the negotiation and drafting of executive employment, separation, and related agreements.

David's clients include publicly and privately held companies, non-profits and trade associations, and their executives in a broad range of industries, including:

  • Health care and life sciences
  • Financial-services
  • Defense and security
  • Telecom
  • Hospitality, including hotels and restaurants
  • Technology
  • Government Contracting
  • Staffing and outsourcing
  • Consulting and professional services
  • Professional sports

David chaired the firm’s Employment, Labor & Benefits Practice for more than a decade. He has been recognized by several publications including Chambers USA, a leading legal research guide, in which clients interviewed described David as a “superior lawyer who is very knowledgeable and attentive” known for his “practicality and strong communication skills.”

David also has frequently written, lectured, and been quoted on issues such as class action risk mitigation, use of arbitration agreements and class action waivers, post-employment breaches of fiduciary duties, employee versus independent contractor status, employment discrimination, alternative dispute resolution, and budgeting for litigation. He is also co-editor of Mintz Levin’s Employment Matters blog.

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