The US Department of Labor (DOL) will be changing the rules regarding overtime. These changes will be effective as of December 1, 2016.
According to the Fair Labor Standards Act (FLSA), employers must pay all employees minimum wage as well as paying overtime rates of 1.5x for each hour worked in excess of 40 in a given work week. The FLSA does, however, allow for exceptions to this rule in the form of exempt employees.
For an employee to qualify as exempt, three requirements must be met: 1) the minimum salary set by the DOL must be met, 2) the employee must be paid their full salary every week (subject to very limited exceptions), and 3) the primary duties of that employee must meet certain criteria (administrative, executive, professional, etc.). The changes to be instituted by the DOL only affect the first requirement: minimum salary.
Currently, in order for an employee to be exempt from overtime, the minimum weekly salary an employer must pay to an employees is $455. Beginning December 1, the minimum weekly salary an employer must pay an employee in order to be exempt from overtime will increase to $913. This effectively takes the minimum annual salary an employer must pay an employee in order to be exempt from the overtime requirements from $23,660 to $47,476. The FLSA also allows for an exemption for highly compensated employees who do not meet the given job criteria. Currently, these employees are exempt if they are paid in excess of $100,000 per year. After the new changes occur in December 2016, employees must make at least $134,004 to be exempt.
Another change that will be made to rules is that, for the first time, employers will be allowed to use commissions and bonuses to meet a portion of the salary requirements. Employers may also use “make-up” payments at the end of each quarter to ensure that employees’ salaries meet the requirement for exemption.
The changes do not end in December. In addition to the changes made to minimum salary requirements, the DOL has also decided to institute automatic adjustments to figures every three years to keep current with the 40th percentile of salaried workers in the lowest wage region, which has traditionally been the South.
These changes leave employers with two options if they have employees who will not meet the minimum salary requirements this coming December: 1) these employees may receive a raise to meet the salary requirements; or 2) they may be reclassified as non-exempt which will require every hour worked in excess of 40 per week to be paid out as overtime.
These changes to the overtime regulations announced by the DOL will certainly change things for many employers. For employers, it may be best to contact an attorney well-versed in employment law to ensure readiness and compliance with the newly set standards.
This article was written by law clerk, Tyler Kemper.
