New Overtime Regulations

On May 18, 2016 The Department of Labor (DOL) announced their final rule on updating the overtime regulations that “will extend overtime protections to over 4 million workers within the first year of implementation.”  The new regulations will affect salaried employees only as hourly wage based employees are already afforded overtime pay.  Here are some of the key factors/notes that we thought private employers and our business clients should be aware of:

  • The new regulations on overtime pay for salaried workers take effect on December 1st 2016.
  • The new annual salary base at which workers may be exempt from the new overtime pay requirements will be $47,476 ($913/week). The old salary base level before the final rule was announced was $23,660.
  • Time tracking for ALL employees is even more critical now because of these new regulations regarding O.T. pay. Here is a link to the DOL’s requirements on recordkeeping:

https://www.dol.gov/whd/regs/compliance/whdfs21.pdf

  • Setting an employee’s annual salary at $47,476 alone will not cause them to be exempt from receiving overtime pay for working more than 40 hours during the work week. The next section will outline the “white collar” exemption test.

 

There are three tests that an employee must meet in order to be considered exempt from the new overtime regulations under the “white collar” exemption:

  1. The employee must be paid on a salary basis.
  2. The employee must meet the minimum salary base level test of $47,476. If the employee’s annual base salary is less than $47,476 then they are not exempt from the new overtime rule.  The employee is therefore entitled to overtime pay for the hours worked over 40 during a given work week.
  3. The employee must meet the “standard duties test”. The standard duties test states that “the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, OR professional employees”.  Below is a chart describing the three different standard duty levels that an employee would be considered to have a “White Collar Exemption”:

 

DOL Mandates table

https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf

Some options for employers regarding the new overtime regulations:

  • Employers can raise employees’ current salaries to maintain the exemption, but should keep in mind the standard duties test that must also be met to be considered exempt.
  • Employers can “reorganize workloads, adjust schedules or spread work hours” of their employees so that they minimize the amount of overtime hours an employee may have to work.
  • Employers can adjust wages “so that the total amount paid to the employee remains largely the same”. For example, an employee that works in a supervisory role and regularly works 45 hours a week with a base salary of $37,000 ($711.54/week) could have their pay adjusted to an hourly rate of pay of $15.00/hour.  This adjustment would result in weekly regular gross pay of $600 (40hrs x $15/hour) and O.T. pay of $112.50 ($15/hour x 1.5 x 5 O.T. hours) for a total weekly gross of $712.50 ($600 + $112.50).  As you can see the weekly gross pay does not significantly change ($711.54 vs. $712.50).

 

Here are some additional notes regarding the standard duties test and the “white collar” exempt status:

  1. Per the Fair Labor Standards Act, an employee’s job title will never determine exempt status. Unless an employee meets the standard duties test (see chart above) they will not be considered exempt from the new O.T. regulations.  It does not matter if their given job title includes manager or administrator in it.
  2. There will be an exemption in place for “highly compensated” employees that are paid an annual salary of $134,004. The “highly compensated” employees will be exempt so long as they “customarily and regularly perform at least one of the exempt duties or responsibilities” that fall under the executive, professional or administrative duties test.

 

 


 

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