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.
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.
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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