The U.S. Department of Labor (DOL) released its long-awaited final rule regarding overtime pay for “white collar” employees (executive, administrative, and professional). The rule applies to all employers covered by the Fair Labor Standards Act (FLSA), which is the federal law that sets minimum wage, overtime, recordkeeping, and youth employment standards. The FLSA covers employers engaged in interstate commerce with gross annual revenue of at least $500,000.

The final rule increases the threshold salary level for white collar employees to be exempt from overtime pay from $23,660 annually ($455 weekly) to $47,476 annually ($913 weekly), and this amount will automatically increase over time. The DOL’s rationale for using $47,476 as the new threshold is that it reflects the 40th percentile of earnings for full-time salaried employees. The effect of increasing the threshold so dramatically is that many white collar employees currently exempt from overtime pay will now be entitled to time and a half for any time over 40 hours that they work in a week. The DOL estimates that the final rule will extend overtime pay to over 4 million workers.

Another significant change in the final rule allows employers to count nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the required threshold salary. Before this change, nondiscretionary bonuses were not allowed to be counted toward the threshold salary. The rule becomes effective December 1, 2016, thereby giving employers a little over six months to comply.

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