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On May 18, 2016, the Department of Labor (“DOL”) issued its final rule on the overtime requirements under the Fair Labor Standards Act (“FLSA”). The final rule will be effective December 1, 2016. Generally, both Federal and Indiana law entitle employees to be paid time and a half for all hours worked over 40 in one work week. Certain categories of employees are exempt from the overtime requirements. The most common exemptions include, exemptions for executive, administrative, and professional employees. To qualify for one of these exemptions, the position at issue must meet each of the following:

1. The position is paid on a salary basis;
2. The position is paid a threshold amount; and
3. The position requires the performance of certain duties delineated for each exemption, and the position requires levels of discretion specifically included for each exemption.

The final rule changes the threshold amount from $455/week to $913/week. As a result of this change, employees who make an annual salary of less than $47,476, will be entitled to overtime compensation. Employees who are paid an annual salary of at least $47,476 will be exempt from overtime compensation if their position also meets the duties and levels of discretion requirements. The final rule allows employers to include certain non-discretionary bonus/commission payments to account for up to ten (10) percent of the new threshold amount, if such payments are paid at least quarterly.

The final rule also includes changes to an exemption available for highly-compensated employees. Under the old rule, a highly compensated employee was overtime exempt if the position met all of the following:

1. The employee earned total annual compensation of $100,000 or more, which included at least $455 per week paid on a salary basis;
2. The employee’s primary duty included performing office or non-manual work; and
3. The employee customarily and regularly performed at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Under the final rule, the annual compensation required for the highly-compensated employee exemption will be $134,004, and the weekly requirement will be $913/week. Employees who are paid an annual salary of at least $134,004 will be overtime exempt if their position meets the other requirements of the exemption.

The final rule also includes an automatic escalation provision so that the new thresholds for the exemptions will increase every three years (beginning as of January 1, 2020).

Employers will need to make changes prior to December 1, 2016, to avoid potential penalties. For affected employees, employers can among other things: increase the salary of the employee above the applicable threshold amount; continue to pay the employee the same salary, but pay the employee any applicable overtime; reduce the hours of the employee to avoid overtime issues; or reduce the employee’s annual salary (as allowed by law), and pay the employee any applicable overtime at the overtime rate.

Please contact Kathryn Cimera at 317.453.2000 in our firm’s Indianapolis office with questions on the new regulation and for any other employment law matters.