- Final overtime rule published
- Employers have until December 1st to comply
- Important for employers who have knowledge workers or managers who earn less than $48K per year
The Department of Labor, Wage and Hour Division published their final overtime rule, setting the new threshold salary level for exempt positions.
5 key provisions of the DOL's new overtime rule:
New threshold salary level to be considered exempt from overtime is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South, which is $913 per week or $47,476 annually for a full-year worker;
Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004;
Allows employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level;
Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption; and
There are no changes to the duties test. The only change is to the minimum salary in order to be eligible for an exemption.
How should employers update their salary levels to comply?
Employers have a range of options to respond to the final overtime salary rule. The first step obviously is to identify the employees who earn less than $47,500 and who are marked as exempt from overtime. For those affected employees, an employer may:
Increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
Pay an overtime premium of one and a half times the employee's regular rate of pay for any overtime hours worked;
Reduce or eliminate overtime hours;
Reduce the employee’s base salary and shift those dollars to pay for overtime for hours worked in excess of 40 per workweek, in order to hold the total compensation consistent; or
Use some combination of these responses.
Obviously, the circumstances of affected employees will impact an employer’s assessment. For example, employers may be more likely to give raises to employees who regularly work overtime and earn slightly below the new standard salary level, in order to maintain their overtime-exempt status so that the employer does not have to pay the overtime premium.
For employees who rarely or almost never work overtime hours, employers may simply choose to pay the overtime premium whenever necessary and implement a solid procedure for authorizing and tracking all overtime hours worked.
Retail, grocery, hospitality, food service, and other industry verticals that have assistant managers and managers earning a base pay of approximately $45,000 will be most affected by the new overtime salary rule.
The Final Overtime Salary Rule goes into effect December 1, 2016, so you have some time to conduct an audit and figure out the best strategy to use with affected employees.
Have questions or need some guidance on how best to formulate your action plan to address affected employees? No problem.
Click below to ask employment law expert Phyllis Cheng.