Today, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.
Sandra Hoyle-Smith, SPHR
What does this mean for you? Between now and December 1st, you will need to review the salaries of your exempt level employees. If any exempt employee has a salary less than the minimum salary threshold of $47,476, then you have one of two options:
- Change the employee to nonexempt and have them start tracking their time on a weekly basis. If they should work over 40 hours in a week, then you will need to pay them overtime of one and one-half times their regular rate of pay, or
- Increase their salary to a minimum of $47,476 in order to maintain their exempt level status.
Before making changes, be sure to review the FLSA Duties Test to ensure that the employee qualifies for one of the exemptions: Executive, Administrative, Professional, Computer and Outside Sales.
Key Provisions of the Final Rule:
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
- Salary Threshold Changed to $913/week ($47,476 per Year).This threshold doubles the current salary threshold level and many affect employees that are currently classified as exempt. It also amends the salary basis test to allow you to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the $47,476 minimum for exempt level positions.
- Automatic Salary Threshold Increases Every 3 Years (Not Annually) to Maintain Level at 40th Percentile in Lowest-Wage Census Region. The new $47,476 threshold will be adjusted every 3 years to maintain the level at the 40th percentile of full time salaried workers in the lowest-wage Census region.
- Effective Date is December 1, 2016. With the rule going into effect on December 1, 2016, you need to review your current workforce immediately to determine which employees are affected, whether you need to reclassify those employees, and execute a communications strategy.
- Highly Compensated Employee (HCE) Exemption Is Now $134,004 Per Year. The final rule maintains the methodology in the proposed rule setting the threshold at the 90th percentile of salaried full-time workers nationally.
Again…the effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
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