The Department of Labor’s “final rule” updating overtime regulations has recently been released. The effective date of the new regulations is December 1, 2016.
The final rule includes the following changes to overtime:
- The salary threshold has increased to $913 per week ($47,476 annually) in order for overtime pay to not be required.
- The salary threshold for highly compensated employees has increased to $134,004, which is the current equivalent of the 90th percentile of full time salaried workers nationally.
- Salary thresholds will now be updated every three years beginning on January 1, 2020. The Department of Labor will publish the updated rates on the Wage and Hour Division’s website 150 days prior to their effective date.
- Nondiscretionary bonuses and incentive payments, including commission, may be used toward the salary threshold. These amounts must be paid at least quarterly to be considered and cannot exceed 10 percent ($4,748) of the new salary basis level. Discretionary bonuses (such as Christmas or year-end bonuses) cannot be used toward the salary basis level.
The final rule did not change the duties tests for the administrative, executive, professional, or highly compensated employee exemptions. An exempt employee must also still be paid a salary to be considered for overtime exemption.
Remember that overtime is not based on the number of hours worked on any given day during the week but rather on the number of hours worked in a seven-day work week. There are some exceptions to this (such as prevailing wage work). Hours worked does not include time where the employee was not performing work such as holiday and vacation time.
There are several actions that can be taken to comply with the new overtime rules. We can assist you with determining what actions, if any, you should consider for your employees.
- Increase your employees’ salaries to comply with the new levels if they meet the duties test.
- Consider hiring additional employees to cover the workload and limited non-exempt employees to 40 hour work weeks to reduce overtime premiums.
- Reduce any salaries that previously included overtime and pay the appropriate overtime premiums instead.
- Consider limiting employee travel time to business hours.
If you have a new employee start during the year, they must earn at least $913 per week to be considered for the exemption. Overtime is based on a seven-day work week – not an annual amount. The minimum weekly amount may be translated into equivalent amounts for periods longer than one week up to one month.
You are not required to exempt your employees from overtime if they meet both the salary and duties tests. You may still pay them overtime if you wish. These rules simply state the requirements and exceptions to overtime regulations.
Please contact us if you need any assistance interpreting or complying with these new rules.