Obama Administration Announces Dramatic Changes to Overtime Rules

On Wednesday, May 18, 2016, the Obama Administration announced details on the final rule for the salary threshold that governs which workers are eligible for overtime pay.  This final rule comes with the Agency receiving over 250,000 public comments and with many concerns and objections of trade associations and major employers across the United States.  The final rule will increase the annual salary threshold for employers to exempt an employee from overtime pay from $24,660 to approximately $47,476.  

The rule goes into effect December 1, 2016, for all employers.

In addition to raising the salary threshold for exemption from overtime pay, key provisions of the new rule include:

  • Automatically updating the salary threshold every three years, based on wage growth over time (this is the first time an automatic increase has been allowed for this salary threshold)

  • Increase the "highly compensated employee" threshold from $100,000 per year to the 90th percentile of full-time salaried workers nationwide, $134,004 per year

  • Allow 10% of bonus compensation to be included in calculations of non-"highly compensated employee" pay (previously bonus pay was not included in the rule, but was added at the insistence of the business community). An employee earning $40,000 base salary, but $100,000 in commission would not be included as their sum compensation would equal $50,000.

  • The Duties Test is not changed by the rule – this is a major win for industry

  • Click here for the Department of Labor’s summary

The business community has cited numerous concerns with the proposals to update the overtime rule, which originally would have set the salary threshold at $50,440, not included bonus or performance incentives in the salary calculation, and would have dramatically complicated workplace management in industries such as third-party logistics (among others).

TIA, along with the U.S. Chamber of Commerce, National Retail Federation, Society for Human Resource Management, and other business groups, strongly supports the Protecting Workplace Advancement and Opportunity Act.  This bill, which has been introduced in both the U.S. House of Representatives (H.R. 4773) and the U.S. Senate (S. 2707), would nullify the final rule and ensure that employers retain the ability to provide a flexible workplace for their employees, encourage the use of cellular phones and mobile email access by their employees when serving customers, and provide the benefit of annual salaries to most employees.  

This is a critically important issue for many TIA member companies.  TIA encourages all members to contact their members of Congress about this important issue, which they can do using this site. 

For more information, email advocacy@tianet.org or call 703-299-5700.