Overtime updates will extend protections to 4.2 million workers

The Obama administration has announced that it is making millions more employees eligible for overtime pay. The Department of Labor (DOL) estimates that this new ruling will affect 194,000 workers in Illinois alone. If you are a not-for-profit organization, the new rules are complex. (See below for more information.)

In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to reflect the original intent of the Fair Labor Standards Act (FLSA), and to simplify and modernize the rules so they’re easier for workers and businesses to understand and apply.

On May 17, 2016, the DOL issued the final rules which update the overtime regulations. These rules define which white collar workers are protected by the FLSA’s minimum wage and overtime standards. The rules focus primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt.

Following are the key provisions of the rules:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the final rules amend the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the new rules is December 1, 2016.

The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Impact on Employers and Employees

The change is expected to play out in a variety of ways. Once the rules go into effect on Dec. 1, many workers will receive more pay when they work overtime, but others may end up working fewer hours if employers move to limit their time at work. In other cases, employers may decide to increase the salaries of some workers to push them over the cutoff so that the employers will not have to pay overtime or hire additional workers after limiting hours for existing employees.

Not-for-Profit Organizations

As the FLSA rules applicable to not-for-profits can be confusing, the Department of Labor issued both an overview and detailed guidance as to when the FLSA applies to not-for-profit organizations. These documents provide an excellent discussion as to when the overtime rules may be applicable to your organization.

• Overview – https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf
• Detailed – https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf

If you have questions regarding the new overtime regulations and how they may impact your business or organization, please contact Warady & Davis LLP at (847) 267-9600.


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