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Employment Alert - DOL Issues Final Overtime Rule

May 19, 2016
The U.S. Department of Labor Issues Final Overtime Rule - Most Significant Development in Wage & Hour Law in Decades

As many of you know, the Department of Labor (DOL) has been working to modernize the overtime rules under the Fair Labor Standards Act which was last updated 12 years ago. On May 18, 2016, the DOL issued its final rule adopting major changes to the salary basis test which determines whether an employee must be paid overtime or not. The most significant change is a more than doubling of the minimum salary that employers must pay to most exempt employees from $23,660 per year to $47,467 per year to avoid overtime payments. The impact of the final rule will be to dramatically increase the number of employees who are now entitled to overtime pay. 

The DOL estimates 4.2 million salaried employees will be newly eligible for overtime when the new rule takes effect. Every employer with employees classified as exempt, but earning less than $47,476 in annual pay, will need to make changes in order to comply with these new wage and hour regulations.

Summary of New DOL Overtime Rule

The key provisions of the final rule, which will be effective on December 1, 2016, are as follows:

 The salary basis test which is relevant to the administrative, executive, and professional exemptions under which most white collar employees are classified exempt, will increase to an amount equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, which is currently the South. This will raise the salary basis test from $455 per week to $913 per week ($47,476 annual salary).

 The salary basis test for highly compensated employees will increase to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 per year to $134,004 per year. (REMINDER: The State of Oregon does not recognize the highly compensated employee exemption to overtime.)
 The salary basis test will now update automatically every three years, beginning on January 1, 2020. Currently, The DOL estimates the annual salary requirement will exceed $51,000 by 2020. The DOL will post new salary levels by August 1 prior to each three-year cycle.

 The final rule will allow up to 10 percent of the salary threshold for non-highly compensated employees to be met by non-discretionary bonuses, incentive pay or commissions, and even certain catch-up payments, provided these payments are made on a quarterly basis.

Recommended Actions for Employers

Employers need to take action now to be ready for the rule by the December 1, 2016, effective date. Employers have choices about how to respond to the new rule.

One obvious option is to simply increase the annual salary of all employees currently and correctly classified as exempt to meet the new salary basis of $47,476.

However, employers have other options as well, including restructuring job duties, reclassifying currently exempt employees as non-exempt, hiring more workers to avoid the need for overtime hours or using bonus pay to partially satisfy the salary requirements while also incentivizing employee performance.

Additionally, all employers should also review the job descriptions of any exempt position to confirm every employee classified as exempt is truly performing a job that meets the duties test for the designated exemption as jobs can change over time. This new rule is an ideal opportunity to perform that review and make larger changes within your organization to ensure compliance with the applicable wage and hour regulations.

Unfortunately, new laws tend to also mean new lawsuits, so it is critical for every employer to take the necessary steps to be in full compliance with all wage and hour laws, particularly by the December 1, 2016, effective date of these new regulations.

Farleigh Wada Witt Can Help

The employment lawyers at Farleigh Wada Witt can help you and your organization understand and implement the new rule. Our lawyers are knowledgeable and experienced in all aspects of wage and hour law. We understand there is not a "one size fits all" response to the new rule, and will work with you to create a response plan that fits your organization.

AttorneysFarleigh Wada Witt Employment Attorneys for Wage & Hour Issues

Kelly Tilden
Kelly Tilden focuses her practice in the areas of employment law, business, and litigation. She advises clients regarding the hiring, discipline and termination of employees, compliance with state and federal civil rights, wage and hour laws, and leave laws. Kelly offers practical guidance and experienced-based insight to help employers confidently apply state and federal regulations.

Contact Kelly at 503.228.6044 or

Kim McGair
Kim McGair's practice emphasizes a wide range of litigation matters including employment, commercial litigation, commercial collections, personal injury defense, and real estate litigation. She is an advocate for her clients and provides them with sensible advice and strong representation to protect their interests and help them achieve their objectives as efficiently as possible.

Contact Kim at 503.228.6044 or

Trish Walsh
Trish Walsh focuses her practice in the areas of litigation and employment law, protecting clients' interests inside and outside the courtroom. In her employment practice, Trish drafts, audits and updates policy handbooks and provides advice on employment issues under Oregon, Washington and federal laws.

Contact Trish at 503.228.6044 or

Copyright  2016 Farleigh Wada Witt. All Rights Reserved.


The contents of this publication are intended for general information only and should not be construed as legal advice or opinion on specific facts and circumstances.


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