The U.S. Department of Labor Proposed Changes to the Overtime Regulations

Good News/Bad News

On June 30, 2015, the Wage and Hour Division of the U.S. Department of Labor used its rule making authority to propose changes to the existing overtime regulations that President Obama announced would make "up to five million more people eligible to receive overtime pay from their employers." The Department is proposing to update the regulations governing which executive, administrative, and professional employees (white collar workers) are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections.
Key Provisions of the Proposed Rule
The Notice of Proposed Rulemaking (NPRM) focuses primarily on updating the salary and compensation levels needed for white collar workers to be exempt. Specifically, the Department proposes to:

1. set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($970 per week, or $50,440 annually in 2016). The present required weekly salary is $455.00/week or $23,660.00/year.
2. increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
3. establish a mechanism for annually automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

What this means for employers is that if you have an employee who is presently classified as Salaried/Exempt who is making less than $50,440 (as of 2016 when these rules go into effect), that employee must be reclassified to hourly and must be paid overtime for all hours worked over 40 within one week.

When the proposed rules were initially published in June of this year, it was expected that they would become effective in early 2016. On November 5, 2015, the Solicitor of Labor, Patricia Smith, announced that the Department of Labor (DOL) had pushed the effective date to late 2016. That is the GOOD NEWS. Normally when these types of rule changes occur employers are given a 120 day implementation period. However, in this case, they may be given as few as 30 days to implement the final rule and convert those presently exempt employees who will not meet the new salary thresholds to non-exempt/hourly employees.  That is the BAD NEWS.

The reason for the short implementation period is because if the next President is Republican, then he/she could invalidate the new rule all together. The DOL needs employers to convert all employees who need to be converted before the next Presidential election.

If anyone should have any questions concerning these proposed new rules, please do not hesitate to contact us.

In order to protect themselves and their organizations, employers should be aware of and in compliance with these and other regulations/decisions issued by various federal/state agencies and courts. If Paul Hilton, Human Resources Consulting, LLC can be of any assistance with these or other HR related issues, please do not hesitate to contact us.

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Paul Hilton is a certified Human Resources Consultant, located in Columbia, SC.
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