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New Final Rule Updates Outdated Overtime Regulations, Expanding Overtime Coverage to Millions of Workers

June 6, 2016 by

The Department of Labor has published a Final Rule updating overtime regulations that will extend overtime pay to 4.2 million workers across the country.  This update was badly needed, as the portion of employees qualifying for overtime has fallen precipitously, from 62 percent of employees in 1975 to just 7 percent today.

The new Rule, published May 18, increases the minimum salary employees must be paid to be eligible for one of the federal overtime exemptions.  Under the Fair Labor Standards Act, employees are guaranteed overtime pay at a rate of one-and-one-half times the employee’s regular rate for hours worked over 40 in a workweek.  But many employees are exempt from this rule.  To be exempt employees must satisfy a two-part test. First, the employee’s salary must be above a certain threshold.  This is where the new Rule makes changes.  Second, the employee’s work must satisfy the “primary duty” test for one of the classification exemptions.  So, all employees paid less than the salary threshold are entitled to overtime, regardless of the sort of work performed.

The Rule will increase the salary threshold from $455 per week ($23,600 annually) to $921 per week ($50,440 annually). As explained in our prior coverage of the issue, under the old threshold an employee could work 50-60 hours per week as a retail store manager, earn no extra pay for excess hours, and be paid below the poverty line for a family of four.

The new Rule will also expand overtime protections in California, as the new federal threshold exceeds the threshold under California state law ($800 per week or $41,600 annually).  The DOL predicts that the overtime update will extend protections to roughly 392,000 California workers.

The thresholds established in the new Rule are grounded in the evolving experience of working people:  the threshold is set at the 40th percentile of earnings for full-time salaried workers in the lowest-wage Census Region (currently, the South).  Importantly, the Rule establishes a mechanism for automatically updating the salary threshold every three years to maintain the compensation levels above specified percentiles.  This should prevent a significant problem experienced with the old rule, as the new Rule requires the qualifying threshold be changed in accordance with rising wages and inflation.  The DOL projects the threshold will rise to more than $51,000 at the first update in January 2020.

The new Rule will go into effect on December 1, 2016.


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