On May 18, 2016, the U.S. Department of Labor the final rule updating regulations that govern the payment of overtime wages under the Fair Labor Standards Act. The new rule, which goes into effect on December 1, 2016, significantly raises the amount of minimum salary that employees must be paid to qualify for the Executive, Administrative and Professional exemptions from overtime pay. As a result, the number of employees eligible for overtime pay will increase significantly. According to a press release issued by the White House, it expects the change to extend overtime protection to 4.2 million Americans who are not currently eligible for overtime wages under federal law. Many salaried employees may find that they will be entitled to overtime pay when the new rule goes into effect. Employers may have to adjust salaries or work schedules.
Under the current rule, salaried employees who earn at least $455.00 per week, or $23,660.00 annually, and who meet certain tests related to their job duties, are exempt from overtime pay under the Executive, Administrative and Professional exemptions.
Under the new rule, the salary threshold will be raised to $913.00 per week, or $47,476.00 annually. Workers who satisfy this salary threshold are still subject to the duties test to determine if they are eligible for an exemption from the overtime pay requirements. Any employee who earns less than this amount must be paid overtime wages, regardless of their duties. Because of the raised salary minimums, employers may now use nondiscretionary bonuses, commissions and incentive payments to satisfy up to 10% of the new salary level. The salary threshold will be automatically updated every three years beginning in January 2020 to ensure that it keeps pace with wage growth, and thus continues to be a meaningful test for exemption.
For “highly compensated” white collar employees who are presently exempt from the overtime requirements because they earn more than $100,000 annually and satisfy a minimal duties test, the new rule raises the threshold to $134,004.00.
Employers can respond to the new overtime rule in several ways. They can continue to pay their newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than 40 hours in a week. They can also convert salaried employees who were formerly exempt to hourly employees entitled to overtime. Employers also can raise salaries above the new threshold for employees whose duties qualify them for an exemption, or implement nondiscretionary bonuses or inventive payments to increase salaries for purposes of these exemptions. Employers can and may reduce hourly wage rates or salaries to compensate for the increased overtime costs. Employers can limit their salaried employees’ hours to 40 per week by, for example, redistributing workloads or hiring new employees.
If you have any questions concerning the new overtime rule, or whether you are being appropriately compensated, you may contact the experienced employment attorneys at Sapir Schragin.