The Final Rule

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A lot has changed since our parents and grandparents retired.  Today the average employee does not stay at one job for his entire career and retire with a gold watch and a pension.  The majority of today’s work force has never qualified for overtime pay in their professional careers and thought nothing of it.  According to the U.S. Department of Labor, the amount of employees qualifying for overtime pay was over 60% in the 1970’s and today this sits at less than 10%.  The media is flooded with debates about tax rates, minimum hourly pay and stimulant packages, but what about the domestic employee rights and treatment?

In 2014, President Obama signed a Presidential Memorandum to direct the Department of Labor (“DOL”) to update certain regulations defining which white collar workers were protected by the Federal Labor Standards Act (“FLSA”) concerning minimum wage and overtime standards.  On May 18, 2016, President Obama announced the Final Rule on these issues which will become effective December 1, 2016 and could boost wages for workers by over $10 billion over the next 10 years according to DOL estimates.

The Final Rule primarily updates the salary and compensation levels that Executive, Administrative and Professional workers become exempt from overtime pay.  The key provisions of the final rule are:

1)      Sets the current standard salary threshold for salaried full time employees to qualify for overtime more than double from $23,660 annually to $47,476 annually (from $455 per week to $913 per week) which is based on the 40th percentile of earnings;

2)      Increases the total annual compensation requirement for highly compensated employees (“HCE”) subject to a minimal duties test from $100,000 a year to $134,004 a year, which is based on the 90th percentile of earnings:

3)      Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new standard salary level; and

4)      Includes a mechanism automatically updating the salary and compensation levels every 3 years to maintain the levels at the percentile(s) listed above, and ensure the continued useful and effective testing for exemptions.

As we have seen with most government legislation attempting to aid the American employee including the most recent Affordable Care Act (“ACA”), usually at the expense of the small to medium sized American private employer, the reaction and response sometimes offset the intended benefits.  Based on this new Final Rule, and similar to what happened as a reaction to the ACA, some employees will have hours reduced to not qualify as full time employees or even laid off.   So for many, December 1, 2016 may provide for an early bonus and holiday cheer, for others, it may be a very gloomy time with loss of possible pay and benefits as the effects of losing their full time status.