On May 18, 2016, the Department of Labor (DOL) announced a final rule for overtime. This rule increases the salary threshold for white-collar workers to remain exempt from overtime pay to $913 per week or $47,476 annually. This new regulation goes into effect December 1, 2016.

If an employee’s salary falls below the newly established salary threshold, then the employer is required to either pay overtime (time and one-half the regular rate of pay) when the employee works more than 40 hours in a week, or increase the employee’s salary to meet the new salary base requirement.

What employees’ are affected:

Executive, administrative, and professional employees who are paid on a salary basis, paid more than the salary requirement, and perform certain duties defined under the FLSA are exempt from the minimum wage and overtime pay requirements.

The salaried employee exemption applies to white-collar employees performing professional, managerial, or administrative work, not blue-collar workers performing manual labor. The salary requirement for exempt employees is not applicable to outside sales employees, teachers, lawyers and doctors. Some other professions that are exempt from these new rules include agricultural workers, railroad workers and truck drivers. For a complete list of professions that are exempt from the new salaried overtime rules, please call on of our offices.

Employers’ options:

If you have employees close to the pay level or employees who work mandatory overtime which fluctuates throughout the year, you can adjust their annual pay to $47,476, eliminating the need to track hours worked.

If overtime is consistent throughout the year, you still pay employees the same amount they’re currently paid by making them non-exempt to the overtime rule. An employer can do this by reclassifying the employees as hourly, and adjust the hourly pay to match the employee’s current salary.

If you want to reduce or eliminate overtime while meeting the demands of your business, you can add additional workers or several part-time workers to assist with the current workloads. This option is especially useful during seasonal peaks.

You also have the option to pay the overtime. Calculate the employee’s current expected annual salary based on the overtime requirements, and pay the additional time and one-half regular pay as it may be under the $47,476 threshold.

Brand New Addition to the Overtime Rule

Bonuses, incentive pay, and commissions can be included up to 10% of the salary base requirement when analyzing total salary paid; the previous rule did not include bonuses or other pay. In order to be included, the amounts are to be paid quarterly or more frequently. For example, an employee whose salary is set at $45,000 and receives a $3,000 bonus would meet the salary level requirement if paid out at least quarterly. A larger bonus would be capped at $4,747.60

Employers have approximately 5 months to prepare for the new regulations. Please contact one of our offices to discuss your options.