On May 18th, the long anticipated updates to the Department of Labor’s (DOL) Overtime Rule were announced. The final rule primarily focuses on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from overtime pay. The key provision that impacts employers is that the rule will entitle most salaried white collar workers earning less than $913 per week ($47,476 a year) to overtime pay. According to the DOL, this new rule will extend overtime provisions to nearly 4.2 million Americans and will double the prior salary level requirement of $455 per week which was established in 2004.
What you need to know:
- Employers will have until December 1, 2016 in order to comply with the new rule.
- The salary threshold increased from $455 to $913 per week or annually from $23,660 to $47,476. This new salary level was set by looking at the 40th percentile of full-time salaried workers in the lowest income Census region.
- Salary threshold will increase every three years to ensure the level is maintained at the 40th percentile of full-time salaried workers in the lowest income region.
- Nondiscretionary bonuses and incentive payments can now count for up to 10 percent of the salary threshold. This also includes commissions. Examples of nondiscretionary bonuses include those tied to productivity or profitability but are required to be paid on a quarterly or more frequent basis.
- Highly Compensated Employee (HCE) threshold will increase from $100,000 to $134,004. If an employee is paid at the HCE threshold, they are deemed exempt under Section 13(a)(1) as long as their primary duties consist of non-manual work and they perform duties of an executive, administrative or professional employee.
- The “duties” test has not changed at this time.
What are your options:
By increasing the number of workers who are eligible for overtime when they work more than 40 hours in a week, employers will have a choice:
- Employers can increase their employees’ salaries. Employers can raise their employees’ salaries to the salary threshold or above the threshold, which would allow them to maintain the employees’ exempt status if they meet the duties test.
- Pay employees overtime for hours worked over 40. Employers can keep employees at the current salary level and pay them overtime whenever they work more than 40 hours a week.
- Limit employees’ work to 40 hours in a week. Employers can make sure that time, workload and staffing is managed correctly so that white collar workers do not need to work overtime. This may require hiring additional workers in order to evenly distribute workload.
Please consult with your accountant and/or your payroll advisors for further details and see below for additional resources.
- United States Department of Labor
- Overview and Summary of Final Rule
- Who Benefits from the New Overtime Rule
ABOUT THE AUTHOR
Susan T. Yohn, SPHR, SHRM-SCP
Director of Human Resources
Susan manages all areas of the HR Department as well as consults with clients on topics including, but not limited to: recruitment, orientation, employee relations, compliance with HR related laws, employee benefit plans, Family and Medical Leave Act (FMLA) and Workers’ Compensation.