New overtime rule benefits millions of employees

On May 18, 2016, the United States Department of Labor announced formal adoption of the updated rule regarding overtime pay. This important development in employment law automatically extends pay protections to several million workers within the next year alone. The expansion of workplace rights flows from a 2014 Presidential Memorandum ordering the Department of Labor to bring overtime pay regulations into the 21st Century. In particular, the Obama Administration took on the task of defining more clearly so-called white collar workers covered by the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. To that end, the updated Rule significantly increases the compensation level of a given employee before an employer can lawfully decline to pay overtime rates for work in excess of 40 hours per week by those employees.

The most concrete and important revisions of the law are as follows: (1) for an employee to be potentially exempt (and, thus, not covered by the Fair Labor Standards Act), that employee must earn at least as much as the 40th percentile of annual earnings for full-time salaried employees in the lowest-earning Census Region in the nation, currently the South, or $47,476 as of now; (2) the total annual compensation requirement for highly compensated employees subject to a minimal duties test must be at least the same as the 90th percentile of full-time salaried employees nationally, or $134,004 as of now; and (3) the compensation levels automatically update every 3 years to maintain the earning levels at the percentiles discussed in (1) and (2) above. The last component is, in some ways, the most significant given the gridlock that has afflicted much of Washington in recent years and impeded necessary legislation and rule-making.

The effective date for the updated Rule is December 1, 2016, giving employers ample time to prepare for implementation – especially considering the Rule changes have already been under consideration for over 1 year. Notably, employers will be able to use nondiscretionary bonuses, commissions, and other incentive payments to apply toward 10% of the new compensation thresholds. All in all, this is a positive development in employment law for employees, and it should help to diminish the temptation of some employers to engage in wage theft. For those unscrupulous employers who nonetheless seek to cheat employees out of wages the employees have earned, the updated Rule will likely facilitate more robust class action litigation and the accompanying recovery of damages, attorney’s fees, and litigation costs.