Do You Need to Make Changes?
The proposed overtime regulation rule changes that I’ve been talking about for months have finally been released, and although it’s not as bad as it could have been, it still has implications for most businesses. Dealers need to closely review the classification status of all employees to evaluate if they need to make changes to compensation plans and/or classifications by December 1, 2016, to comply with the new rules.
The final rule includes:
- A) A minimum salary threshold increase that has more than doubled. Moving from $455/week to $913 ($47,476 per year).
- B) A forced update to the salary threshold every three years, based on wage growth over
- C) An increase in the minimum threshold for Highly Compensated Employees to $134,000 per year, up from $100,000.
The final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees.
To clarify workers who are exempt from overtime based on the Fair Labor Standards Act (FLSA)—and therefore ineligible to collect overtime pay for any hours worked beyond 40 in a workweek—must now earn at least $47,476 a year ($913 a week) effective Dec. 1, 2016. That’s up from the $23,660 a year ($455 a week) threshold under the current rule.
Forced automatic updates every three years are now part of the rule and the threshold will be set at the 40th percentile of full-time salaried workers in the lowest income Census region (currently the South). This was better for businesses than the original proposal.
Workers, who meet the minimum salary threshold, classified as exempt also must meet the duties test, which means workers must perform executive, administrative, or professional work as their primary duty or qualify under another exemption from overtime. The duties test provisions still remain the same.
An important note is that employers can use bonuses to meet up to 10 percent of the threshold amount, but the bonuses must be paid at least quarterly.
Reclassification opportunity
If an employer has some currently exempt workers, who are perhaps wrongly classified because they don’t really meet the appropriate white-collar exemption, the new rules will offer the employer the opportunity to change the classification without raising red flags about the fact that the employer hasn’t been paying any overtime to the worker.
This means it’s the right time to reevaluate job descriptions and classifications to ensure everyone is classified correctly.
What does this mean to employers?
Employers face a decision. If you have employees who don’t currently meet the minimum salary threshold and they work overtime, you have options: You can raise their salary high enough to meet the minimum threshold by Dec. 1st, choose to begin paying overtime for all hours worked in excess of 40 per week starting Dec. 1st, or you can redistribute work to ensure your staff is not working overtime.
The rule also increased the annual salary threshold from $100,000 to $134,000 for meeting the highly compensated employee level. Therefore to qualify for the highly compensated employee exemption they must earn at or above that threshold.
Up to 10 percent of non-highly compensated employee’s salaries can consist of bonuses, incentive pay, or commissions provided that these payments are made no less than quarterly.
Workers whose salary meets the minimum thresholds still have to meet the duty requirements to qualify for overtime exemptions.
To read the entire ruling and details, click here!