What is the Overtime Rule of 2016?

Editor’s Note At the time of publication, the Fair Labor Standards Act was set to take effect on December 1. On Wednesday, November 23, a federal judge issued an injunction against the new law. For more information about the case, check out the following stories from some of the major news outlets.

Texas Judge Issues Nationwide Injunction Against Obama’s Overtime Rule

Read more at forbes.com.

A Federal Judge Just Blocked the Obama Administration’s Signature Overtime Rule

Read more at fortune.com.

Judge halts federal rule that would have expanded overtime pay to millions of workers

Read more at washingtonpost.com.

Federal Judge Blocks Obama Administration’s Overtime Pay Rule

Read more at npr.org.

Overtime Final Rule of 2016

On May 18, 2016, President Obama and Secretary of Labor Thomas E. Perez announced the Department of Labor’s new rule extending overtime wage protections to more than 4 million additional Americans. This update to the Fair Labor Standards Act takes effect December 1. Overtime is any amount of time exceeding 40 hours in a workweek. An employee must receive a pay rate not less than one and one half their regular pay for time worked above 40 hours.

Key Provisions

• Updates the current overtime threshold from $455/week ($23,600/year) to $913/week ($47,476/year)
   
• Sets the Highly Compensated Employee (HCE) rate to $134,000/year
   
• Allows the amounts to be updated every three years beginning in 2020
   

How was the standard determined?

• Updated from 2004 standard ($455/week), determined to be too low for exempt employees as the real value of the wage has fallen
   
• Threshold set at the 40th percentile of weekly earnings of the lowest Census earning region (currently the South)
   

Salaried Employees

• The new overtime rule does not require salaried employees to be switched to hourly, even if those employees do not meet the wage threshold.
   
• Flexible scheduling is still allowed, as long as employers maintain accurate records of hours worked by overtime-eligible employees; employees do not have to punch a time clock.
   

Bonuses and Incentives

• Nondiscretionary bonuses and incentives can count toward 10 percent of the standard salary requirement.
   
• Employers may use a “catch-up” bonus to maintain an exempt employee’s status at the end of a quarter. If the employer does not use a catch-up bonus, the employee is entitled to overtime pay for that quarter.
   

Who Benefits?

• 4.2 million American workers will either gain new overtime wage protections or receive a raise to remain exempt from overtime.
   
• 56 percent are women.
   
• 53 percent have a four-year college degree.
   
• 61 percent are age 35 or older.
   
• 34 percent are parents of at least one child under age 18.
   

For more information, visit dol.gov/whd/overtime/final2016.