United States: How the New Overtime Rules Will Impact Employers Nationwide

While mostly uncomplicated as a matter of law, employers should be prepared for the significant business and employee relations issues raised by the new rules.

Following the U.S. Department of Labor's ("DOL") announcement last year of sweeping proposed changes to the "white-collar" exemptions under the Fair Labor Standards Act ("FLSA") (i.e., professional, administrative, executive, computer professionals and outside sales), on May 18, 2016, the DOL published the much-awaited Final Rule, which more than doubles the annual salary threshold for exempt status to $47,476. The White House estimates that the new minimum salary will expand eligibility for overtime pay to an additional 4.2 million workers.

The effective date of the Final Rule is December 1, 2016. While mostly uncomplicated as a matter of law, employers should be prepared for the significant business and employee relations issues raised by the new rules. The next six months provide valuable time to plan strategically.

Key Provisions of the New Overtime Rules

By way of background, in order to be classified as exempt, the following three tests must be met: (1) minimum salary test, (2) salary basis test and (3) duties test. The significant changes and non-changes to these tests are as follows:

Minimum Guaranteed Salary

The minimum guaranteed salary level will be more than doubled, from $455 per week (the equivalent of $23,660 per year) to $913 per week, which equates to $47,476 annually for a full-year worker. This figure represents the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region.

Automatic Update Mechanism

The DOL has established a mechanism for automatically updating the minimum guaranteed salary and compensation levels every three years to maintain the percentile levels to the 40th percentile of full-time salaried workers in the lowest-wage Census region. This adjustment will begin on January 1, 2020, when the minimum salary level is estimated to reach $51,168 per year.

Highly-Compensated Employee Exemption

The "highly compensated employee" ("HCE") exemption, which enables employers to meet a simpler "duties" test as long as a higher minimum guaranteed compensation threshold is met, will be increased from $100,000 to $134,004 for a full-year worker, which is the annualized value of the 90th percentile of weekly earnings of full-time salaried workers nationally.

Salary Basis Test; Use of Non-Discretionary Bonuses

The salary basis test means that exempt employees must be paid on a salaried, not hourly, basis, with deductions prohibited except in very narrow circumstances. The DOL has made one key (and welcome) change to this test: Employers will now be permitted to include non-discretionary bonuses, incentive payments or commissions to satisfy up to 10 percent of the substantially higher minimum salary level, as long as payments are made at least quarterly.

Duties Test; Sector-Specific Guidance

Currently, the "primary duty" test for exempt status is qualitative and not quantitative. Under the Final Rule, primary duty continues to mean the main, principal or most important duty.

By the questions it asked in the proposed regulations, the DOL suggested that it might adopt a quantitative approach, as is the case under California law. Ultimately, the DOL did not make the change, and the Final Rule still applies a qualitative approach to the primary duty analysis.

However, the DOL developed guidance documents for non-profits and institutions of higher education, as well as a general overview to illustrate the application of the Final Rule to certain sectors and to discuss the substantive duties test more generally.

Even though the DOL has not changed the duties test, now may be an opportune time for employers to evaluate positions to ensure they satisfy the duties test, which tends to be the most-litigated issue in a challenge of an employee's classification. Employers should be thoughtful about how they collect and analyze the data. The collection and analysis of the data under attorney-client privilege may help minimize the risk that good-faith efforts will be used against the employer. Although beyond the scope of this Alert, the privilege issues are deceptively complex.

What This Means for Employers

Wage-and-hour compliance remains a paramount concern for employers, and noncompliance with the FLSA and its regulations can result in significant liability, along with potentially negative impacts on publicity, morale and recruitment efforts.

The key question that employers will likely need to decide with exempt employees currently earning below the new minimum salary is whether to raise their salaries to retain their exempt status or to convert them to non-exempt status. The DOL recognizes that "numerous options for compliance" exist. Some of the business and employee relations issues that employers should consider are discussed here.

It is important to note that employees get the benefit of federal or state law, whichever is more favorable. This is particularly significant for employees in California.

About Duane Morris

Duane Morris will be hosting a number of webinars and seminars through the Duane Morris Institute to help employers navigate the legal and business issues raised by the Final Rule.

Webinar registration for June 2, 2016.

Webinar registration for June 16, 2016.

Please also visit the Duane Morris Institute Blog for additional insight on the Final Rule and other legal developments.

For Further Information

If you have any questions about this Alert, please contact any of the Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions