What is changing with the new Overtime Rule?
The U.S. Department of Labor issued the final version of its new overtime exemption rule on May 18, 2016. These rules were designed with the stated goal of ensuring that 35% of all workers nationwide would qualify for overtime benefits. As a result, many employers will soon face new financial challenges in dealing with formerly exempt employees no longer meeting the criteria for exemption. Employers may find themselves faced with the choice between raising salaries of currently exempt employees on the one hand, or dealing with additional overtime costs on the other.
Below is a brief summary from the Ohio State Bar Association regarding DOL’s new exemption requirements. These new standards are set to take effect on December 1, 2016.
Should you have any questions regarding this new guidance, or desire more detailed analysis and advice, feel free to contact us.
Overtime pay is changing: What Is Changing
The U.S. Department of Labor has posted its final overtime rule. The Final Rule updates the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt, in particular it:
• Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker); and
• Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)
Automatic Updates and Salary Basis Test
• Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
• Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Effective Date
The new rule takes effect Dec. 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
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