May 15, 2016

Summary of New Overtime Regulation Change

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Salary Threshold Skyrockets to $913 per week ($47,476 per year)! The old salary threshold was $455 per week so the new threshold doubles the current salary threshold level. This threshold is lower than the $51,000 proposed by the initial rule, but still encompasses many more workers.

Bonuses, incentive payment, and commissions. This is key for many of you who provide bonus or commissions to your managers or other exempt employees. The final rule will allow up to 10% of the salary threshold to be met by non-discretionary bonuses, incentive pay or commissions provided these payments are made on at least a quarterly basis. It’s critical you understand the difference between discretionary and non-discretionary bonuses and commissions as it applies to your workforce.  

Highly Compensated Employee (HCE) Exemption is Now $134,004 per year. The final rule sets the salary threshold at the 90th percentile of full-time salaried workers nationally and will adjust automatically.

Salary Threshold Increases Automatically Every 3 Years With A 150 Day Prior Notice To Employer

The proposed rule would have increased the salary basis every year.  As a concession (albeit slight), the DOL will now automatically raise the salary basis every 3 years to maintain the level at the 40th percentile of full-time salaried workers in the lowest-wage Census region. The first increase will be January 1, 2020, and the estimated increase will be to $51,168.  The DOL will post the new salary level 150 days in advance of their effective date, beginning in August 1, 2019 (so, you can go ahead and set your Outlook calendar reminder now for 8/1/19).

Duties Test is Unchanged

While it may not seem like a win, employers did secure a victory by avoiding a change to the duties test for what job functions workers must perform to fall within the white-collar exemptions. This is the second prong of the exemption test, with the first prong being to meet the salary threshold. So, at least you will not have to re-audit everyone’s duties to see if they fall within a new test, leaving you more time to figure out what to do with those who make less than $47,476 per year.  

Effective Date is December 1, 2016

The normal implementation time period is 60 day for a new rule.  The DOL’s final rule provides additional time for employers to prepare.  Next Steps - Many of you have already started planning so you should use the next few months to solidify your plans.  If you have not done so yet, you should review your current workforce to determine which employees are affected and whether to re-classify those employees, increase pay, restructure incentive compensation programs to increase earnings, relegate duties, etc.  There is a lot that can be done, including many ways to limit costs to employers. Further, developing a communication strategy for why changes are made is important as well—some exempt employees will not like being hourly.  If you have any specific issues that you are concerned with, feel free to call.  

Catherine is a principal member of Pearson Law Group where she provides employment law expertise of a big firm at small firm rates since 2004.