Millions of Americans Become Eligible for Overtime in 2016

President Obama recently announced a change of rules governing overtime pay eligibility. The new rule, which will affect roughly 5 million Americans, proposes to raise the salary threshold for overtime eligibility.

Currently, under the Fair Labor Standards Act (“FLSA”), for an employee to be exempt from overtime, generally he or she must satisfy the Department of Labor regulations to be considered executive, administrative or professional (or be considered as outside sales or computer professional) and earn at least $455 per week ($23,660 annual).  If these tests are met, the workers are exempt from time-and-a-half overtime regardless of the amount of hours worked. The new rule proposes to increase the salary threshold for overtime to $970 per week or $50,440 annually. It is possible that the salary threshold will automatically be updated based on wage growth over time. Overall, the new rule could total an additional $1.3 billion in overtime wages per year for employers.

As mentioned above, the overtime exemption is currently based on income as well as job type and responsibilities. Under the FLSA, a “duties test” is used to determine if an employee is exempt from overtime pay based on the tasks performed and if their responsibilities fall into one of the above-referenced three “white collar” categories of exempt job duties. According to a Wall Street Journal article and the Department of Labor, the proposal is “not expected to alter which white-collar job duties exempt some employees from receiving overtime.”

The Department of Labor’s website notes that the proposed policy change has been reviewed and approved, and the document was published in the Federal Registrar on July 6, 2015. The Obama Administration has noted that the changes to the overtime rule could be implemented as early as January 2016.

If you have any questions regarding the new overtime rule and what it could mean for your business, please contact Philip S. Mortensen.