Department of Labor Finalizes New Overtime Regulations: DOL Substantially Raises Salary Thresholds Used in Determining Overtime Exemptions but Does Not Change Regulations Defining Duties Required of Exempt Employees

Sullivan & Cromwell LLP - May 31, 2016

On May 18, 2016, the Department of Labor released its long-awaited revisions to its overtime regulations.  The final rule, which takes effect on December 1, 2016, was the result of a process that began in March 2014 when President Obama issued a directive to the Secretary of Labor to revise existing overtime regulations, with the express purpose of increasing the number of workers who qualify for overtime payments.  The Department published a Notice of Proposed Rule-Making in June 2015, which engendered nearly 300,000 comments.
The final rule, which spans over 160 pages of rule-making as well as discussion of comments to the earlier Notice of Proposed Rule-Making, includes the following significant changes:

  • A substantial increase to salary thresholds for the “white collar” exemptions under the Fair Labor Standards Act (executive, administrative, professional, computer, and outside sales employees) from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).  The new rate was established based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. The Department estimates that this change will impact 4.2 million white collar workers in fiscal year 2017.
  • Employers may satisfy up to 10 percent of the standard salary requirement with nondiscretionary bonuses, incentive payments, and commissions, provided that these forms of compensation are paid at least quarterly.
  • A significant increase to the salary thresholds for the highly compensated employee exemption from $100,000 per year to $134,004.  The Department estimates that this change will impact 65,000 workers in fiscal year 2017.

The minimum salary thresholds for both the “white collar” and highly compensated exemptions will automatically update every three years on January 1 (beginning in 2020) using a fixed percentile of wages. Finally, the Department did not change any of the existing job duty requirements to qualify for exemption (the so-called “duties test”), even though it had requested comments on the same.