Employers Take Note: New Overtime Rule Announced

Employers Take Note: New Overtime Rule Announced

On May 18, 2016, the Department of Labor announced the final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This new regulation will have an enormous impact on many organizations.

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 from overtime pay. Specifically, the Final Rule:

1. Sets the standard salary level at $913 per week; $47,476 annually for a full-year worker;
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,004; and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

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.

What does this mean for Employers?
1. Employers must ensure that all employees are properly classified. An employee must meet both the new salary test as well as the duties test (which did not change) to be exempt from overtime pay.
2. Some employers will decide to change employee classification to non-exempt so that all hours worked can be properly tracked. Some employers may decide to raise an employee’s salary to meet the new salary threshold.

Job titles don’t determine exemption status. You must look at the actual job duties and the annual salary tests to determine the proper employee classification.