On May 17 the Department of Labor (DOL) released a final rule governing overtime pay under the Fair Labor Standards Act. Although the Final Rule improves upon the proposed rule, incorporating a number of NATSO's comments to DOL, it nonetheless includes a significant increase to the overtime salary threshold, and includes automatic increases in the future. This will present considerable challenges to employees and employers alike.
NATSO is still analyzing the more than 500 page rule, and will provide a detailed summary and compliance guide in the coming days. Below is a brief overview of the final rule's most significant provisions:
1) Salary Threshold Doubled
The new salary threshold will increase from $23,660/year ($455/week) to $47,476/year ($913/week). Any employees earning less than this will be entitled to overtime pay of at least 1.5x his or her salary for all hours worked in excess of 40 per week. While this level is slightly lower than the threshold in the proposed rule, it still encompasses many employees that are currently classified as exempt from overtime.
2) Automatic Salary Increases Every Three Years
The $47,476 figure will increase automatically every three years, based on the 40th percentile of full-time salaried workers in the lowest-wage Census region. DOL had proposed adjusting the salary annually. The adjustments will not, however, account for regional differences, changing economic conditions, or specific impact on certain industries.
3) Duties Test Unchanged
In a significant victory for NATSO members, the DOL has not changed the "duties test" differentiating "white collar" employees who are exempt from overtime pay (provided they earn more than the salary threshold) from other employees who are entitled to overtime. The current duties test works well for employers, particularly those such as truckstop operators whose employees are often called upon to perform a variety of different job functions.
4) Effective Date is Dec. 1, 2016
DOL had proposed to make the new rules effective just two months after the rule became final; the December 1, 2016 effective date is nearly 200 days after the rule becomes final and thus a substantial improvement from the proposal. NATSO advocated for a longer time period for employers to adjust their practices to accommodate the final rule.
Employers may credit nondiscretionary bonuses and incentive payments toward up to 10% of an employee's salary for purposes of meeting the salary threshold. The bonuses must be nondiscretionary (i.e., pegged to financial performance rather than the employer's subjective judgment) and must be paid on a quarterly or more frequent basis. (The proposal would have required bonuses to be paid monthly, so this is an improvement. NATSO advocated for such a change.)
As noted above, NATSO will provide a detailed summary and "next steps for employers" document in the coming days.
Although the final rule preferable to the proposed rule, NATSO continues to advocate legislation, the Protecting Workplace Advancement Opportunity Act (S. 2707, H.R. 4773) that would block the rule pending a full economic analysis of changes to overtime regulations. The legislation also contains critical provisions preventing the rule from including automatic updates to the salary threshold.
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