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Paul Zimmerman

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Hospitality Industry Alert: DOL Delivers New Overtime Exemption Rule Ahead of Schedule

In July 2015, the U.S. Department of Labor (DOL) proposed changes to the Fair Labor Standards Act’s (“FLSA”) overtime exemptions. Specifically, the Notice of Proposed Rulemaking introduced changes to the executive, administrative, professional, and highly-compensated employee exemptions from the overtime requirements of the FLSA. As noted in a previous blog post from August of 2015, these regulations, which are now one step closer to being finalized, will likely have a major impact on hotels and restaurants.

The final version of the proposed rule was delivered this week to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget, the last stage before issuance of the Rule. The OIRA must complete its assessment within 90 days (but it may complete the review in as little as 45 days if the regulations are on a fast track). The final rule would likely become effective by September (unless fast tracked, in which case the rule might take effect as early as mid-July).

Based on the DOL’s regulatory proposal, the final regulations will likely more than double the minimum salary requirement that is needed to qualify for the executive, administrative, and professional exemptions to the FLSA’s overtime and minimum wage requirements. Key provisions of the proposed rule include: (1) setting the standard salary level required for exemption at the 40th percentile of weekly earnings for full-time salaried workers (projected to be $970 per week, or $50,440 annually, in 2016); (2) increasing the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and (3) establishing a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

Employers should waste no time in preparing for the implementation of this new exemption threshold. Exempt-classified positions might need to be reclassified, assessing both salary levels under the proposed new salary test and job duties under the duties test. Reclassification will require a thoughtful and effective rollout plan that takes into consideration the automatic annual update under the proposed new FLSA regulations, seeks to maximize guest experience, and is aligned with the employer’s long-term business strategy.

M&R will issue another alert at such time as the rule is approved. The final rule will have an effective date 60 days after publication. 

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.