Breaking News: New Federal Overtime Regulations Released, Effective Dec. 1

May 18, 2016

August FLSA Overtime SeminarEarlier today, the US Department of Labor (DOL) unveiled its final overtime rule. The final rule makes a dramatic increase to the minimum salary that white-collar employees must be paid to qualify as “exempt” from the overtime requirements of the federal Fair Labor Standards Act (FLSA), taking the threshold from $23,660 ($455 per week) to $47,476 annually ($913 per week). The new rule, which includes no carve-outs, will impact businesses large and small when it takes effect on December 1, 2016.

The Michigan Chamber submitted comments to the DOL in opposition to the rule change, arguing the proposed rule went too high, too fast and should be reconsidered because of the impact it would have on employers and employees alike. Unfortunately, the DOL largely ignored those comments and hundreds of thousands of similar comments from the business community across the nation, setting into motion one of the most aggressive forms of federal government interference in wages we’ve seen in a decade or more. 

Under the new rule, the salary threshold will be tied to the 40th percentile for full-time salaried workers in the lowest income Census region (currently the south) and will be updated every three years. If economic modeling projections prove to be accurate, it could rise to more than $51,000 annually when the first update takes effect on January 1, 2020. In addition, the rule specifies that the salary level for employees who qualify for the "highly compensated employee" exemption will rise from $100,000 per year to $134,004 per year beginning in December 2016. This level is the annual equivalent of the 90th percentile of full-time salaried workers nationally.

Although the DOL estimates that over 100,000 employees in Michigan will become eligible for overtime when the rule takes effect, there are many strategies whereby employers can manage their compliance costs.  For some job providers it may mean absorbing the cost of the increase, either by paying more employees overtime pay or increasing their salaries to more than $47,476 to retain their exempt status (and avoid overtime payments). For employers looking to manage their compliance costs, they may consider converting employees from exempt status to hourly, eliminating overtime hours altogether or adjusting other fringe benefit packages accordingly. 

Employers looking to manage their costs should not hesitate to seek legal help to ensure compliance. The rules are complex, and there are serious financial consequences if you are found to be in violation of them. The DOL's budget for Fiscal Year (FY) 2017 includes $277 million for wage and hour division enforcement, an increase of $50 million from FY 2016. Once the rule is effective, employers should fully expect the DOL to audit employers to ensure compliance.

Finally, it is important to note that the rule changes will likely be challenged both in Congress and in the courts.  Unfortunately, legislation to nullify the rules would require either the President’s signature or a veto override, making this option quite challenging, if not impossible. Hence, many believe a legal challenge, questioning the DOL’s statutory authority to unilaterally impose a government mandate of this size and type without Congressional involvement, is the business community’s best option for nullifying the rule.  We will provide further information on this effort as it becomes available.

Please contact Wendy Block at wblock@michamber.com with any questions.