Learn How New Overtime Pay Requirements
Affect Your Company
Each of our clients should be aware that the United States Department of Labor (“DOL”) recently released a final rule that makes dramatic changes to the determination of which executive, administrative and professional employees (“white-collar employees”) are entitled to overtime pay under the Fair Labor Standards Act (FSLA). The new rule goes into effect as of Dec. 1, 2016. The DOL estimates that more than 4 million salaried workers in the country will become eligible for overtime when they work more than 40 hours in a week.
Current Requirements for White-Collar Exemption
In order to qualify for white-collar exemption from the overtime requirements under current federal law, an employee must generally satisfy three different tests:
- The Salary Basis Test. The employee is salaried, meaning he or she is paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of the work performed.
- The Salary Level Test. The employee is paid at least $455 per week, or $23,660 annually.
- The Duties Test. The employee primarily performs executive, administrative or professional duties.
Neither job title nor salary alone can justify an exemption from the overtime rules. That is, the employee’s specific job duties and earnings must both meet applicable requirements.
New Rules Going into Effect Dec. 1, 2016
The revisions in the final rule mainly relate to the Salary Level Test. The rule increases the salary threshold for salary-exempt employees from $455 per week to $913 per week, or $47,476 per year. The final rule allows up to 10% of the salary threshold to be met by non-discretionary bonuses, incentive pay and commissions, as long as those payments are paid on at least a quarterly basis.
It should be noted that the required weekly salary will automatically be updated every three years by the DOL, beginning Jan. 1, 2020.
The final rule makes no changes to the duties test. Under the new rule, businesses will have several choices to make:
- A company may decide to do nothing if your white-collar workers fall short of the new salary level, but do not ever work more than 40 hours per work week.
- A company may want to raise the salary of certain employees who meet the Duties Test but work more than 40 hours per week so that they will exceed the new threshold. This could be a good option if employees are near the new threshold and occasionally work overtime.
- A company may decide to pay overtime for hours worked over 40 per week for some of your employees. This could be a good option for companies where working more than 40 hours for this group of employees is rare.
We will be glad to discuss the new rule with you and help you determine the best way to comply. For more information, please call Mark Reis at 513-241-0400.