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Wage and Hour Division (WHD)

Final Rule: Overtime

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. Consistent with the President's goal of ensuring workers are paid a fair day's pay for a hard day's work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA's intended overtime protections are fully implemented.

The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Although the Office of Management and Budget (OMB) has reviewed and approved the Final Rule, the document has not yet been published in the Federal Register. The Final Rule that appears in the Federal Register may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The OMB-approved version is being provided as a convenience to the public and this website will be updated with the Federal Register’s published version when it becomes available.

 

Informational Webinars on the Overtime Final Rule   Register Here

 

 

While the overtime exemption dollar threshold will more than double, employers are to be allowed to use bonus payments to account for up to 10 percent of the new $47,476 annual salary amount when a final federal Wage and Hour rule goes into effect Dec. 1, the White House announced in a fact sheet.

Until Dec. 1, the annual salary threshold amount to meet the salary basis test for the exemption is $23,660 and employers cannot apply any bonus payments to meet that Fair Labor Standards Act requirement.

The fact sheet, issued prior to the final rule's release, said the wage threshold will be adjusted every three years to “ensure the threshold is maintained at the 40th percentile of full-time salaried workers in the lowest income region in the country.”

In addition, the annual wage amount for highly compensated workers that require a shorter duties test to become exempt is raised to $134,004 from the current $100,000, the fact sheet said.

The final rule does not change duties tests, which, along with the salary basis tests, are used to determine who can be exempted from overtime.

The final rule officially will be released May 18, the White House said. In addition, the agency will issue three technical guidance documents “designed to help private employers, non-profit employers, and institutions of higher education come into compliance with the new rule,” the fact sheet said.

In a separate call with members of the press, special circumstances for colleges and universities will not be addressed in the final rule, but options to avoid paying overtime under the new rule will be described in the additional guidance, according to Cecilia Munoz, director of the White House Domestic Policy Council.

 

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