DOL's Final Overtime Rule - 6 Key Updates You Need to Know Now
Under the Department of Labor’s updated overtime rules, employers may need to pay their workers quite a bit more in salary or plan to pay overtime when the rule becomes effective.
Currently, employees in certain work categories who are paid a salary and make over $23,660 per year ($455 per week) are considered “exempt.” This means they are exempt from overtime requirements. They are paid a set salary which is not tied to the hours they work, and they don’t get paid more if they work more than 40 hours in a standard work week.
Under the DOL’s final rule, employees who qualify under the executive, administrative and professional exemptions (i.e., the “white collar" exemptions) will have to be paid at least $47,746 per year ($913 per week) to remain exempt. This is more than double the current salary! An informal copy of the final rule is available on the Federal Register website.
Here are the six key changes that you need to know now:
- The final rule will take effect on December 1, 2016. Put this date on your calendar and start planning now!
- The salary level required to keep employees exempt (meaning you do not have to pay them overtime for working more than 40 hours per week) under the administrative, executive and professional exemptions has increased to $47,476 per year ($913 per week). This means if you are currently paying an exempt employee less than $47,476 per year, plan on paying overtime starting December 1, 2016, if you do not increase their salary.
- Employers still have to pass three tests before they can properly designate employees as exempt under the final rule. The employee must: (1) be paid the required threshold salary, (2) be paid a regular salary each week regardless of work performed and (3) meet the duties tests outlined for the executive, administrative or professional exemptions. The first test is the only one that has changed in the final rule.
- Up to 10% of the new minimum salary can be satisfied with non-discretionary bonuses, incentive pay or commissions, if payments are made on at least a quarterly basis. This may help some exempt employees meet the new salary threshold.
- Another exemption under the FLSA is the “highly compensated employee” exemption. Currently, employees who make over $100,000 per year, are paid at least $455 per week and pass a minimal duties test are considered “highly compensated employees” and are exempt from overtime. Under the final rule, you will have to pay the same employee at least $134,004 per year ($913 per week). You can make additional payments to bring the salary up to the new level by December 1, 2016, including commissions, nondiscretionary bonuses and end-of-year “catch up payments.”
- There will be automatic increases to the salary and compensation levels every three years on a going forward basis. The DOL will post the new salary levels at least 150 days before the effective date.
Is this really happening?
Right now, the answer is yes. The final rule may be challenged, but you should start planning for it to become effective on December 1, 2016. To simplify things, you should implement the following “action plan” now: (1) conduct an internal audit of your workforce to determine whether any exempt employees will no longer qualify as exempt once the salary threshold increases to $47,476 per year (or $134,004 for highly compensated employees) and (2) if the answer is yes, either increase that employee’s salary to $47,476 or $134,004 per year or convert him or her to a non-exempt, hourly employee before December 1, 2016. This is not going to be an easy process, but help is available.
The blog content should not be construed as legal advice.