On May 18, 2016, President Obama and Secretary of Labor, Thomas Perez, announced the publication of the Department of Labor’s “Final Rule” updating the overtime regulations. This is the first update in over a decade, and will mean that certain workers are now exempt from the requirement that they be paid “overtime wages.”
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be classified as “exempt” from overtime payment. Specifically, the Final Rule makes the following significant changes to the existing regulations:
- Raises the standard salary level required for a full-year worker to meet the exemptions. The level will be raised from $455 per week, or $23,660 annually, to $913 per week, or $47,476 annually;
- Sets the total annual compensation requirement for highly compensated employees subject to a certain test known as the “minimal duties test.” The level will be raised to $134,004 from the current level of $100,000; and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years.
The Final Rule goes into effect on December 1, 2016. On that date, the initial increases to the standard salary level and highly compensated employees’ total annual compensation requirement will become effective. Future automatic updates to those thresholds will occur every three years based on inflation, beginning on January 1, 2020.
As a result of this rule change more employees will be entitled to receive overtime wages. An estimated 18% of full-time salaried employees in Massachusetts will be eligible for time and a half from the new overtime provisions, while an estimated 35% of full-time salaried employees will benefit nationally from the new provisions.
Because of the strict penalties against employers (and certain individuals associated with the employers), both employees and employers must be aware of these important changes.