Last summer the Department of Labor announced a proposed rule that recommended a significant change to criteria by which overtime exempt employees are measured. After receiving voluminous comments to the proposed rule, last month the Department released the final rule.
Under federal law employees must meet two tests before they are considered “exempt” from the overtime requirements. Those tests are known as the “salary basis” test and the “primary duty” test. The new rule announced only affects the salary basis test. The rule increases the minimum salary threshold for overtime exempt employees from the current level of $455 per week, or $23,660 per year; to $913 per week or $47,476 per year. This means that with certain exceptions, employees who earn less than these minimum thresholds are entitled to be paid overtime rates for hours worked beyond 40 hours per week. The new rule does allow up to 10% of the minimum threshold to be paid in the form of nondiscretionary bonuses and incentive payments, such as commissions, so long as those payments are made at least quarterly.
The new rule establishes “indexes” for the minimum salary wages by tying them to the 40th percentile of weekly earnings of full-time salaried employees in the census region with the lowest wage (currently, this is the South region). It also provides a mechanism to update these minimum thresholds every three years to prevent the erosion of wages by inflation.
The new rule also adjusts the minimum salary threshold for “highly compensated employees,” increasing from $100,000 per year to $134,004 per year.
While rules from the Department of Labor usually take effect 60 days after announcement, the Department has announced that the new overtime rules will not become effective until December 1, 2016, allowing employers an opportunity to adjust their wages and workforces accordingly.
On July 20, 2016 attorney Dana Quick will host a free 30 minute webinar regarding these new rules. You may register for the webinar here. Registration is limited.