The Administration’s final overtime rule, published on May 18th, will make an estimated 4.2 million new workers eligible for overtime pay. Salaried workers, making up to $47,476 annually, will get time-and-a-half payments for work over 40 hours in a week. The effective date is December 1, 2016.
On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL) to “propose revisions to modernize and streamline the existing overtime regulations.” Specifically, the President cited the exemption for executive, administrative and professional employees as having “not kept up with the modern economy.”
In response to the President’s memorandum, Department of Labor issued the proposed rule on July 6, 2015. The final rule was issued on May 18, 2016 and can be found here.
How The Overtime Rule Works
The Fair Labor Standards Act (FLSA) guarantees workers a minimum wage and overtime pay for hours worked above 40 hours in a week. However, some employees are exempted from the overtime pay requirement if:
(1) the employee makes a pre-determined and fixed salary;
(2) the salary is above $47,476 annually;
(3) the employee’s job duties primarily involve executive, administrative, or professional (EAP) tasks.
Since 2004, that salary threshold was set at $23,660 per year. The new rule more than doubles the threshold to $47,476 per year. Employees in executive, administrative, or professional positions making less than the increased salary threshold will not meet this exemption and thus must receive overtime pay. Furthermore, the salary threshold will automatically update every 3 years beginning on January 1, 2020.
WIPP’s Comments and Concerns
The 508-page rule addresses many of the more than 270,000 comments received including specific comments made by WIPP. WIPP advocated for an exemption for small businesses. The DOL recognized WIPP’s concerns, but concluded that their final salary threshold would “provide relief” as it is slightly lower than the $50,440 that was originally proposed. While the salary threshold is lower than estimated, it is still double the current threshold.
DOL also recognized WIPP’s concern of a loss of workplace flexibility. WIPP’s comment noted that many employees perform some of their work remotely and outside of normal business hours, such as working from home. The DOL responded that it “does not believe that workers will incur the significant change in flexibility.” The rule went on to state that, “Employers should be able to trust such valued employees to follow the employers’ instructions regarding when, where, and for how many hours they may work and to accurately record their hours worked.”
WIPP’s also commented on the difficulty of tracking employee hours to ensure compliance. This comment was also recognized by DOL, but they did not address this concern in their final rule.
The Fair Labor Standards Act, which governs the overtime rules, includes a carve-out for businesses that have less than $500,000 in annual revenue and do not engage in interstate commerce. However, DOL guidance suggests that the interstate commerce requirement is likely met by most businesses.