Update to Overtime Eligibility Coming Soon

By: Brad O’Neil 

Effective December 1, 2016, an update to the Fair Labor Standards Act’s (FLSA) overtime provisions will automatically extend overtime pay eligibility to 4.2 million workers.  The update will entitle full-time salaried workers making less than $47,476 a year ($913 per week) to overtime pay when they work more than 40 hours per week.  The current salary threshold, set in 2004, is $23,660 ($455 per week).  The only other update occurred in the 1970s. 

According to the Department of Labor (DOL), only 7 percent of full-time salaried workers are eligible for overtime protections under the current salary threshold, compared to 62 percent in 1975.  In addition, while considered too high for overtime eligibility, the current salary threshold falls below the federal poverty line for a family of four.

After consultations with employers, workers, and unions, and a review of more than 270,000 public comments, President Obama directed the Secretary of Labor to make the update in March of 2014.  The Obama Administration says the update is necessary to honor the intent of the Fair Labor Standards Act – that workers get paid for the hours they put in.  The Administration also says that the original purpose of the salary threshold, to exempt high-level employees who often enjoy paid leave and other benefits, has been slowly eroded to include low-level employees who often work in excess of 40 hours per week without additional compensation.

The DOL conducted an Economic Impact Study on the new rule and found that the direct costs to employers, including regulatory familiarization, adjustment, and managerial costs, will average $295 million per year while the increased pay for employees will average $1.2 billion per year.

After December 1, employers can either raise their minimum salaries above the new $47,476 threshold or ensure that their employees do not work more than 40 hours per week.  Hourly workers continue to be eligible for overtime unless they are otherwise exempt.