On May 18, 2016, the U.S. Department of Labor (DOL) published final regulations relating to the payment of overtime. The regulations will affect how 4.2 million workers are classified under the Fair Labor Standards Act (FLSA). The rule will become effective on December 1, 2016, giving employers a little more than six months to comply.

Presently, employees who meet the job duties test under the FLSA and earn at least $455 per week ($23,660 per year) are exempt from overtime. Under the new regulations, employees would be subject to the exemption if they meet the job duties test—which remains unchanged—and earn at least $913 per week ($47,746 annually, an increase of $24,086 over the current regulations). As of December 1, 2016, if an employee earns less than $47,746 annually, the employee is no longer exempt from overtime and must be reclassified as non-exempt.

In addition to the increase in the salary threshold, the final regulations make the following key changes:

• The salary threshold will automatically increase every three years to equal the 40th percentile of weekly earnings for full-time, salaried workers in the nation’s lowest-income region;
• The overtime threshold for “highly compensated” employees will increase from $100,000 to $134,000; and
• For the first time, employers can count bonuses and commissions toward as much as 10 percent of the salary threshold.

The proposed regulations published in June 2015 would have been even more unfavorable to employers than are the regulations that were just published. Under the proposed regulations from last year, the salary threshold would have been $50,400 per year and employers would have been prevented from counting bonuses toward the salary threshold. Moreover, the final rules give employers six months to comply, which is longer than the 60-day compliance window that many industry experts believed the DOL would provide.

Although the final rules are slightly more favorable to employers, several concerns remain. For example, the salary threshold will change every three years, regardless of changing economic conditions. In addition, the automatic adjustments will deprive interested parties from an opportunity to comment on any proposed increase.

Now that the final rules have been published, employers should immediately create a list of employees who are currently classified as exempt but do not meet the new salary threshold. Employers can then make an individualized determination of whether to reclassify the employees as non-exempt or increase the annual salary to meet the new threshold. In addition, employers will need to create strategies for controlling overtime hours for those employees who were previously classified as exempt and are now non-exempt.