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Department of Labor Issues Final Rule Expanding Overtime to Millions of Employees

May 18, 2016

On Wednesday, May 18, 2016, the U.S. Department of Labor issued its Final Rule raising the overtime salary threshold required to qualify for the Fair Labor Standard Act’s (FLSA) “white collar” exemption to $47,476 per year, more than double the current threshold of $23,660. The weekly threshold salary level will increase from $455 to $913. Workers earning salaries beneath that threshold will be entitled to time-and-a-half pay whenever they work more than 40 hours in a week.

This new salary level is equal to the 40th percentile of weekly earnings for full-time, salaried workers in the country’s lowest income region, which is currently the South. Beginning on January 1, 2020, the salary threshold will be automatically updated every three years to ensure it stays at the 40th percentile benchmark. The Final Rule will also raise the overtime salary threshold to qualify as a Highly Compensated Employee under the FLSA from $100,000 to $134,004 per year.

The Final Rule takes effect on December 1, 2016. According to the Obama administration, the Final Rule will extend overtime protection to 4.2 million more Americans who are not currently eligible under federal law.

Employers should conduct an audit of their pay practices to ensure compliance with the Final Rule, as well as generally review whether the job duties for these positions continue to meet the current white collar exemption rules. For impacted employees, salary increases or converting the employees to a non-exempt status will be necessary.

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