On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule regarding the update of overtime regulations, extending overtime pay protections to more than four million workers within the first year of being implemented. The effective date of the final rule is December 1, 2016.
The key provisions of the final rule include:
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region, currently the South ($913 per week; $47,476 annually)
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption
- Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (such as commissions) to satisfy a maximum 10% of the new standard salary level
Currently, only salaried workers who make less than $23,600 are eligible for overtime pay. With the new policy, the threshold raises to $47,476, which affect around 4.2 million individuals. Further inflation adjustments will be made every three years after that using the same 40th percentile criteria.
However, lower-wage businesses and service industries, including retail and hospitality, are against this new rule. According to the National Retail Federation, instead of salary increases to raise workers above the overtime threshold, the NRF suggest that businesses will reclassify professionals as hourly workers, which disqualify them from specific benefits, existing perks, and flexibility. Michael Rounds, a Kansas University official, testified before a congressional committee on Thursday (June 9th, 2016), the new ruling will be “detrimental” to higher education, as far as the reclassification of employees, reduction of services, and the possible increase in tuition.