Final Rule on Overtime Issued by the U.S. Department of Labor
august 1, 2016
By: Deb Stegall
The U.S. Department of Labor (DOL) has updated the regulations defining which employees are protected by the minimum wage and overtime standards of the Fair Labor Standards Act. These changes are expected to provide overtime to more than four million additional employees at a significant cost to employers, and will require employers to analyze their current workforces. The full regulation is posted on the Federal Register's public inspection website.
Effective December 1, 2016, employers will be subject to new overtime rules issued by the DOL. To be ineligible for overtime, employees must be paid a predetermined fixed salary of at least $913 per week ($47,476 per year). If the employee’s salary does not meet this threshold, the employee must be paid overtime for any hours worked over 40 hours per week. In addition to meeting the salary test and the salary basis test, employers must ensure all employees have been properly classified according to the actual duties the employees perform. If an employee does not meet the salary test, the salary basis test and does not perform executive, administrative or professional duties, as defined in the DOL’s regulations, the employee will eligible for overtime.
The new salary requirements will be automatically increased every three (3) years beginning January 1, 2020, to prevent the requirements from becoming outdated. The DOL also provides that certain highly compensated employees are not eligible for overtime. The minimum highly compensated salary will increase from $100,000 to $134,004. Highly compensated employees must perform office or non-manual work, be paid at least $134,004 per year, be paid at least $913 per week, and customarily and regularly perform at least one exempt duty of an executive, administrative or professional employee.
It will be necessary for employers to promptly analyze the impact the final rule will have on each employee. Employers must determine how they will respond to the new rules– by increasing salaries of those properly classified as executive, administrative, or professional to meet new salary level, paying more overtime, limiting overtime hours, or reducing base salary to compensate for overtime hours while still paying the hourly minimum wage. Illinois employers also must still consider Public Act 93-0672, which followed the federal law changes made to the compensation threshold published in the final rule published April 23, 2004, but committed Illinois employers to continue classifying employees within the definitions of executive, administrative, and professional under the Fair Labor Standards Act (FLSA) and the rules adopted under the FLSA as they both existed on March 30, 2003.
Therefore, Illinois employers will need to review the definitions of executive, administrative, and professional under both the March 30, 2003 classifications and the current federal definitions to determine if an employee is eligible for overtime purposes under either.