New Overtime Rules Become Effective Dec. 1, 2016; May Require Adjustments in Salaries, Hours
The United States Department of Labor has issued final rules designed to dramatically expand overtime pay eligibility for American workers.
In particular, the new rules significantly increase the amount that white-collar employees must be paid to be classified as “exempt” and thus not entitled to overtime. Unless these new rules are challenged — and reportedly there are plans underway — most employers will either need to increase salaries or adjust hours worked by many in the workplace.
Currently, employees performing duties that qualify them for a “white collar” exemption from overtime (administrative, executive or professional employees) must receive a salary of not less than $23,660 per year. Absent a challenge, the final rules will take effect on Dec. 1, 2016, and will more than double the minimum annual amount to $47,476. DOL estimates that nearly 5 million workers in the United States will be affected by this rule change.
The new rules also permit non-discretionary bonuses and commissions to constitute up to 10 percent of this new salary requirement, as long as they are paid at least quarterly. The salary threshold will be updated every three years, beginning in 2020.
Employers with exempt employees being paid less than this new threshold amount must either increase salaries or monitor hours worked to avoid overtime obligations. In situations where such employees will now be classified as nonexempt (eligible for overtime), employers must also be careful to track hours worked, ensure compliance with rest break and meal period requirement, monitor or prohibit work performed after hours or on weekends, etc. This may also be a challenge and adjustment to employees who now find themselves classified as nonexempt.
Employers are encouraged to review employee classifications prior to the implementation date of Dec. 1, 2016, and determine whether current exempt employees will continue to satisfy the new salary requirements. This also would be an opportune time to confirm that any such exempt employees also satisfy the “primary duties” tests for white collar employees. These have remained unchanged under the new rules, but are still critical in satisfying the requirements of such an exemption.