The new Department of Labor (DOL) overtime rules are posted on the Federal Register as of May 16, 2016. Employers who have salaried, exempt workers, i.e., not eligible for overtime pay, under the new rule might not end up with as many, or will have to raise salaries to maintain said exemptions.
The following are preliminary questions — asked and answered — that cover five of the basic overtime rules employers need to know:
- When does the new overtime rule go into effect?
As previously stated, the rule is already in effect, but employers have until December 1, 2016 to either reclassify their exempt employees and pay them overtime or take steps to preserve the employees’ exempt status.
- The old rule exempted salaried employees earning $23,660 a year ($455 a week)? How has that changed?
The minimum salary has just about doubled, to $47,476 ($913 a week). So salaried employees who make at least $47,476 annually and do primarily “white collar” or supervisory work will be exempt. The DOL will do percentile salary reviews every three years. By 2020, the salary minimum will likely be raised to over $51,000.
- Will commissions or bonuses be figured in as part of the $47,476/year salary threshold?
Yes, they will — up to 10 percent of the $47,476 amount annually. This was a major DOL concession to employers’ concerns over bonuses and other incentives, including commissions. The new overtime rule allows employers to add up to 10 percent of the $47,476 salary threshold as part of the employee’s overall salary. That 10 percent figure could raise the employee’s earnings’ threshold past the minimum.
- What is the distinction between an employee who is considered “exempt” and a “non-exempt” employee? Would the difference be the same as salaried versus hourly?
The difference lies in the actual classification of the employee, not whether the employee is salaried or paid hourly. The Fair Labor Stands Act (FLSA) “exempts” certain employees from overtime pay requirements. There is a common erroneous perception that an employee drawing a salary means that the employee is “exempt” from overtime. Receiving a salary ― as opposed to an hourly wage ― is but one of the criteria for exemption.
In order to qualify for exempt status, employees must:
- receive a salary that remains constant and does not fluctuate based on work quality or hours on the job
- Meet the new $47,460 annual pay threshold
- Pass the DOL job duties’ test; i.e., that the employee’s primary responsibilities are supervisory as opposed to “frontline” work
The foregoing requirements are described in detail in the DOL overtime regulations. The employee cannot be considered exempt unless the employer can demonstrate that all three of the foregoing requirements are met. If they are not, the employer must begin tracking the newly non-exempt employee’s hours and pay the overtime.
5. Must employers increase their affected managers’ compensation?
No. The new regulations do not require any individual pay increases. Employers have other options. They include:
- placing previously salaried, exempt employees on an hourly rate, or
- classifying the employee as salaried, non-exempt
Each of the foregoing means that the affected employee must be paid overtime for all hours over the standard 40-hour workweek.
There’s more to read and much to do.
The foregoing only scratches the surface of everything employers need to know about the new DOL overtime rules. This DOL Q&A webpage goes into significant detail on the new rule and should be required reading for company policy and financial managers who need to run the numbers and make some impactful decisions.
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