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Friday, December 4, 2015

Overtime Exemption Rule Coming July 2016

By: Thomas Eden

The new overtime white-collar exemption rule will be issued July 2016, according to the U.S. Department of Labor’s fall 2015 regulatory agenda, which the Office of Management and Budget published just before Thanksgiving.

The DOL’s proposed rule, issued on June 30, 2015 would raise the salary threshold for exemption from the current $23,660 to $50,440. The Department proposes to update the regulations governing which executive, administrative, and professional employees (white collar workers) are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections. Key provisions of the proposed rule include: (1) setting the standard salary level required for exemption at the 40th percentile of weekly earnings for full-time salaried workers (projected to be $970 per week, or $50,440 annually, in 2016); (2) increasing the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and (3) establishing a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption. The Department last updated these regulations in 2004, which, among other items, set the standard salary level at not less than $455 per week.

Common Sense Counsel: This Proposed Regulation will be sticker shock for most manufacturing, retail, fast food and millions of small business employers. Follow these 7 steps for some relief and solutions: 1) take a deep breath and let it out slowly as a stress relief exercise; 2) take the Draft Exemption Trial Work Sheet Test and your current job description (better have one) for each of your current salaried exempt employees and see if they truly pass one of the five exempt employee test; 3) for those previous supervisors who are now newly christened hourly employees who do not pass the test, make them a team leader of some kind with an hourly wage rate; 4) for those hourly employees who will work 50 hours a week, consider a Fluctuating Work Week or Below written agreement to lower your overhead cost; 5) for those who do meet the exempt test, and you still want to keep them salaried, then you will have to give them a raise to 50,440 by the second quarter of 2016 and redraft their job description (in-fact you should redraft most of your job descriptions by the end of 2015); 6)  update your pay reporting system and handbook to help you keep day-by-day control of excessive overtime costs; and most important 7) come up with creative ways to engage and incentivize your hourly employees to think like owners.

Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at with Links to worksheet and regulations on Blog. Many thanks to Ellen Kearns, partner at our office in Boston, for her help on this posting. You can send Tommy an email and request free access to his BOX account with various compliance resources on this topic.