FINAL RULE Released: Fair Labor Standards Act
Today, the Department of Labor (DOL) released its final regulations making changes to Part 541 governing overtime exemptions under the Fair Labor Standards Act (FLSA). As you know, SHRM leads the employer coalition, the Partnership to Protect Workplace Opportunity, on the rule and SHRM members have shared their views on numerous occasions with Congress and the Administration through testimony, listening sessions, comments on the regulation, and thousands of letters to policymakers.
While SHRM appreciates the Administration’s attention to some of the concerns relayed by SHRM members, we are disappointed that the final rule includes a significant increase to the salary threshold and automatic increases in the future. These will present considerable challenges to employees and employers. This is why SHRM-supported legislation to block the rule, pending a full economic analysis of the changes to overtime regulations, is still needed. This legislation also contains critical provisions preventing the rule from including automatic updates to the salary threshold.
SHRM is reviewing the final rule and will provide information and resources over the next few days to help you understand the changes and prepare to implement the rule in your workplace.
In the meantime, here are the key elements of the new regulation that you need to know now:
1. Salary Threshold Changed to $913/week ($47,476 per Year)
This threshold doubles the current salary threshold level. While this level is slightly lower than the threshold in the proposed rule, it still encompasses many employees that are currently classified as exempt. SHRM was disappointed that DOL did not offer a more reasonable increase and set the threshold, as it has in the past, at a level designed to encompass those employees that are clearly not engaged in exempt-type work.
2. Automatic Salary Threshold Increases Every 3 Years (Not Annually) to Maintain Level at 40th Percentile in Lowest-Wage Census Region
DOL reduced the frequency of the automatic increases in response to concerns raised by SHRM and others. Instead of annual increases, the threshold will be adjusted every 3 years to maintain the level at the 40th percentile of full-time salaried workers in the lowest-wage Census region. Automatically updating the salary threshold, however, does not allow the government to take into account changing economic conditions, specific impact on certain industries, or regional differences. It also denies the public the ability to have input on the threshold as required by the regulatory process.
3. Duties Test is Unchanged
The absence of a duties test change is a significant win for the thousands of SHRM members who expressed concern in this area. DOL did not make changes to the standard duties test.
4. Effective Date is December 1, 2016.
SHRM advocated for a longer implementation period than the standard 60 days and the final rule provides additional time for employers to prepare. With the rule going into effect on December 1, 2016, HR professionals should review their current workforce immediately to determine which employees are affected, whether to re-classify those employees, and execute a communications strategy. HR should keep in mind the periodic adjustments and set a regular review process.
5. Highly Compensated Employee (HCE) Exemption Is Now $134,004 Per Year
The final rule retains the methodology in the proposed rule setting the threshold at the 90th percentile of full-time salaried workers nationally.
6. Stay Tuned for SHRM Member Resources…
• SHRM Webcast – Understanding DOL's New Overtime Rule. Register Now for the Thursday, May 19, 2 p.m. ET webcast!
• SHRM Special Report for HR – coming soon! Look for an upcoming SHRM summary of the final rule with tips on compliance. Visit SHRM’s Overtime Resource Page for additional resources.
• SHRM’s 2016 Annual Conference -- From the final FLSA overtime regulations to health care to performance management to the latest innovations in HR, you’ll get the practical tools and resources you need to solve your toughest HR challenges.
7. Advocacy in Congress is Even More Important
While the final rule contains some limited improvements, it is critical for Congress to pass the Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773), which would nullify this rule and require DOL to perform an economic analysis of how changes to overtime regulations will impact nonprofits, small businesses, and employers in other vulnerable industry sectors before issuing a new rule. Visit SHRM’s call to action to quickly and easily send an email to your members of Congress to ask that they cosponsor this important workplace legislation.
NEXT STEPS: As referenced above, Congress will continue to try to nullify the rule through legislation requiring DOL to conduct a robust economic analysis, by refusing to fund the rule’s enforcement, and other means. Given the breadth of the rule, SHRM is considering all policy options.
SHRM has taken a leading role in educating the Administration and Congress on the rule’s impact on the workplace. As a member, you can trust that SHRM will keep you up-to-date on every critical detail of the regulations. We’ll also be here to answer your specific questions as you begin to implement these changes over the coming weeks – this is just one way your SHRM membership works for you.