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Getting Clarity On Overtime Regulations

On May18, 2016, former President Barack Obama and former Secretary Thomas E. Perez announced the publication of the Department of Labor’s final rule regarding the update of overtime regulations, extending overtime pay protections to more than 4 million workers within the first year of being implemented. The effective date of the finale rule was December 1, 2016.

According to information supplied by the U.S. Department of Labor, key provisions of the final rule include that it: 

  • Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region
  • Sets the total annual compensation requirement for highly compensated employees (HCEs) – subject to a minimal duties test – to the annual equivalent of the 90th percentile of full-time salaried workers nationally
  • Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles
  • Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (such as commissions) to satisfy a maximum of 10% of the new standard salary level
  • Currently, only salaried workers who make less than $23,600 are eligible for overtime pay. With the new policy, the threshold raises to $47,476, which affects around 4.2 million individuals. Further inflation adjustments will be made every three years thereafter using the same 40th percentile criteria.

Lower-wage businesses and service industries, including retail and hospitality, complained about the 2016 rule change. According to the National Retail Federation (NRF), instead of salary increases to raise workers above the overtime threshold, the NRF suggested that businesses will reclassify professionals as hourly workers, which disqualify them from specific benefits, existing perks and flexibility. Michael Rounds, a Kansas University official, testified before a congressional committee on June 9, 2016, that the new ruling will be “detrimental” to higher education, as far as reclassification of employees, reduction of services and the possible increase of tuition goes.

I am Houston employment attorney Chukwudi “Chuck” Egbuonu. To see how you are affected by this ruling, contact my firm, Egbuonu Law, by calling 713-966-6085 and schedule a free consultation with me today.