Department of Labor Issues Major Update to Overtime Rules

Department of Labor Issues Major Update to Overtime Rules

Rule will impact 4.2 million people

Watching The Clock

The US Department of Labor announced a final rule to extend overtime protections to approximately four million workers. The rule has to do with the thresholds that determine who is and isn’t exempt from overtime rules under the Fair Labor Standards Act (FLSA). The rule will take effect on December 1, 2016.

Current rules state that certain executive, administrative and professional employees are exempt from overtime regulations if they work more than forty hours per week. One important factor in determining who is and isn’t exempt from overtime is salary threshold. Under the existing rule an employee must be paid at least $455 per week, or $23,660 annually in order to be considered exempt from having to be paid overtime. The new rule would raise that amount to $913 per week or $47,476 annually. The rule will also raise the threshold for highly compensated employees (HCE’s), who are exempt from overtime rules regardless of their job duties, based on their salary. The HCE threshold will go from the current $100,000 to $134,004 a year.

What does this mean for employers?

If an employer currently has employees who qualify as exempt from overtime but make less than $913 per week ($47,476 per year) they would be considered non-exempt going forward and would become eligible for overtime. The Department of Labor estimates that the rule will impact approximately 4.2 million people across the country, including over 275,000 in New York.

Overtime Rule Explanation
Source: US Department of Labor

What if I currently have several (or many) employees who work more than 40 hours per week but earn less than $913 per week?

HR One encourages employers to conduct an appropriate analysis of current payroll information and identify employees in this category. Once identified there are several steps one can take to determine how this proposed change could impact productivity and costs:

  • Can their work time be kept at or below 40 hours per week?
  • Would it save more over the long-term to increase certain employees’ salaries to $913 per week in order to maintain their exemption or to pay them time-and-a-half when they work more than 40 hours per week?

How should employers factor in employee bonuses, commissions, etc.?

The final rule will allow up to 10 percent of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.

Does this rule change the "duties" test for determining overtime eligibility?

No - there were no changes made to the "duties" test and it will continue to apply to all employees making at least $913 per week.

How will this rule change going forward?

The Department’s final rule will automatically update the salary threshold every three years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020. The Department will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.

If you have specific questions about exempt/non-exempt employee situations or paying overtime call the HR Helpline at 1(800) 457-8829 or complete and submit the form below with your question.

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