New Overtime Rules from DOL
The Department of Labor has issued its final rule regarding the new salary threshold for employees to be considered “exempt” from overtime pay. This area of wage and hour laws has consistently caused problems for companies that are not focused on properly identifying their workforce at the time of employment and as job functions and roles change during the course of an employee’s career.
Background:
The Fair Labor Standards Act provides that companies
must pay employees at the rate of time and
one half (“overtime”) for those hours worked more
than 40 hours per week. However, certain employees
may be exempt from the overtime provisions if they
meet certain criteria based on 1) how they are paid,
2) how they much they earn, and 3) what job duties
they perform. Essentially, to be an employee exempt
from overtime rules based on job duties, they must
be a “white collar” worker. These “white collar” workers
must be paid on a salary basis and also satisfy
certain job duties tests under one of the available
exemptions for executive, administrative, or professional
employees. While the final rule gave marginal
guidance on the job duties tests, the main thrust was
on the second prong of the test—how much people
must earn for companies to claim the exemption.
What’s Changed:
Now, employers must pay workers a salary of at
least $913 per week, or $47,476 annually, in order to
meet the exemption. As the previous rate was
$455 per week, many employers must double the
minimum salary they pay in order to keep employees
exempt from overtimeIn addition, in order to
meet the highly compensated employees’ exemption,
the annual salary threshold has been raised to
$134,000 from the previous $100,000 annual salary.
Important to note: Employers may use bonuses and
incentive payments (including commissions) to satisfy up
to 10 percent of the new standard salary level. And for
the first time, the final rule implements automatic
updates to the salary and compensation thresholds
every three years beginning in January 2020, to maintain
wage growth over time.
What Does This Mean for Employers:
The effective date of the Final Rule is December 1,
2016, so employers have about six months to review
and revise their job descriptions, payroll structures, and
internal policies to ensure their compliance with the
new overtime rulesThe DOL suggests the following
options for employers:
• increase the salary of an employee who meets
the duties test to at least the new salary level
to retain his or her exempt status;
• pay an overtime premium of one and a half
times the employee’s regular rate of pay for
any overtime hours worked;
• reduce or eliminate overtime hours;
• reduce the amount of pay allocated to base
salary (provided that the employee still earns
at least the applicable hourly minimum
wage) and add pay to account for overtime
for hours worked over 40 in the workweek, to
hold total weekly pay constant; or
• use some combination of these options.
Other options include revising job duties amongst employees in a department or possibly outsourcing some job functions to preclude overtimeIn any event, employers should take the time now to review their policies or face potential litigation or worse in the coming year. For more information, see www.dol.gov/overtime.
Business Insights is hosted by the Law Firm of
Kumar, Prabhu, Patel & Banerjee, LLC (KPPB).
Radha Thiagarajan of KPPB Law Houston advises
and represents management in employment
matters in federal and state courts.
Disclaimer:
This article is for general information purposes
only, and does not constitute legal, tax, or other
professional advice.
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