DOL issues final OT rule: It’s more good news than bad
Is the DOL’s new overtime rule going to be a burden for businesses? Yes. There’s no denying that. But compared to the original proposal, there are some things to be happy about.
To be clear, we’re not saying employers should be excited for the rule. Rather, if you were expecting the final rule to be as daunting to comply with — or worse — than the proposed rule, there are some things to be happy about.
Specially, the good news is:
- The salary threshold was lowered. The proposed rule said the annual salary an employee had to be paid to be considered exempt under the FLSA would be $970 per week or $50,440 per year. That number has now been dropped to $913 per week or $47,476 per year.
- The threshold won’t increase every year. In its proposal, the DOL suggested tying the threshold to an automatic escalator, which likely would’ve resulted in the threshold climbing annually. Instead, the final rule says the threshold will increase every three years.
- Nondiscretionary bonuses count toward the threshold. Other than for highly compensated individuals, nondiscretionary bonuses haven’t counted toward an individual’s salary and, therefore, couldn’t help employers push workers over the exemption threshold. But the final rule emends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new $47,476 salary level.
- The duties tests won’t change. Many employers and business groups feared that, in addition to what everyone knew would be a big jump in the salary threshold, the DOL would alter the duties tests for the professional (a.k.a., white collar) exemptions. Specifically, early indicators were that the DOL would look to adopt a California-style rule in which employees would be required to spend more than 50% of their time performing exempt duties to be classified as exempt. But the DOL decided to leave the duties tests alone.
- You get more time to comply. All along, the DOL had been hinting that employers would only get 60 days from the time the final rule was published, until they had to be in compliance. But the final rule says employers have until Dec. 1, 2016 to get their payroll processes in order. That’s a little over six months.
The finer details
Some of the other things employers need to know about the rule:
- The highly compensated employee threshold will climb. The total annual compensation requirement needed to exempt highly compensated employees subject to a minimal duties test will climb to $134,004 from 100,000 — equivalent to the 90th percentile of full-time salaried workers nationally. This is a good bit higher than the proposed threshold of $122,148. This threshold will also increase every three years.
- Nonprofits and small businesses must comply. The regulations do not make exceptions for not-for-profit organizations or small businesses.
- Employers will get notice of threshold increases. The DOL will give employers at least 150 days’ notice prior to increasing the salary thresholds for standard employees, as well as highly compensated employees.
Why $47,476?
One of the biggest questions employers have is: Why make the threshold $47,476?
It’s not just to double the current $23,660 threshold. The answer’s a bit more complicated than that.
In its proposal, the DOL suggested increasing the threshold to $50,440. This number represented the 40th percentile of earnings for full-time salaried workers nationwide.
But critics of the rule said the threshold would have a disproportionate impact on states with a lower cost of living.
So the DOL found a way to compromise … a little … while sticking to its 40th percentile calculation.
The new threshold of $47,476 represents the 40th percentile of earnings in the lowest wage census region — currently the South.
How will the number climb?
Another question employers have is: How will the threshold be recalculated every three years?
The threshold will be reset to the 40th percentile of earnings in the lowest wage census region. In other words, the DOL will look at what the 40th percentile of earnings is in each of the four major census regions in the U.S. — the Northeast, Midwest, South and West — and set the new threshold at whichever figure is the lowest.
For more help: In anticipation of the new rule, HR Morning published a breakdown of three critical employee conversations it’ll force employers to have with their employees.
