Employers Must Play by New Overtime Rules

June 24, 2016

Most Employees Paid Less Than $47,476 a Year Will Get Overtime Pay

The U.S. Department of Labor (DOL) has announced its final regulations making major changes to the definitions of executive, administrative, and professional employees who are exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements.

Effective December 1, 2016, to be exempt under those traditional “white-collar” exemptions, an employee must:

-be paid on a salary basis,

-perform executive, administrative, or professional duties as defined in DOL regulations, and

-be paid at least $913 per week ($47,476 per year)

The $47,476 annual salary threshold is lower than the $50,440 the DOL initially proposed last year, but more than twice as high as the current $23,660. The DOL set the amount at the 40th percentile of all salaried full-time workers in the lowest wage U.S. census region. The regulations allow up to 10% of the salary threshold to be met by non-discretionary bonuses, incentive pay, or commissions, if those payments are made at least quarterly.

The final regulations also require the DOL to announce automatic adjustments to the salary threshold every 3 years (not annually as originally proposed), beginning in January 2020. They do not change the descriptions of duties employees must perform to be exempt.

As a result, beginning December 1, unless they qualify for some other exemption, currently exempt white-collar employees with annual pay less than $47,476 will either have to have their pay increased to meet or exceed that amount, or be reclassified as non-exempt. This is regardless of the importance of their duties, the number of employees they supervise, or the level of discretion they regularly exercise in their work. Non-exempt employees must be paid at time-and-a-half rates for all hours worked in excess of 40 in a workweek.

Educator and Other Exemptions Remain Unchanged

The DOL did not change the regulations that say employees who teach or tutor in an educational establishment are exempt professionals regardless of their pay. Nor did it change the exemption for school administrators who are paid on a salary basis at least equal to the entrance salary for teachers in that educational establishment, and whose primary duty is performing administrative functions directly related to academic instruction.

Other exemptions that remain unchanged include those for outside salespersons, certain commissioned retail salespersons, licensed lawyers and doctors, and computer professionals.

There also remains an exemption for highly compensated employees performing office or non-manual work who customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee. But the new regulations change the “highly compensated” amount from $100,000 or more annually to $134,004 or more.

Employers: What Now?

Employers should examine all of their employees’ pay rates and duties to be sure they will be classified correctly when the new regulations take effect in December. Those who do not meet the white-collar exemption requirements, either because their duties are not as described in the regulations, their pay is not on a salary basis, or their pay is below $913 a week ($47,476 a year), will have to be paid at time-and-a-half rates for all hours worked in excess of 40 in a workweek (unless they qualify for a different exemption).

Employers may want to maintain some employees’ exempt status by raising their salaries above the threshold. They may consider adjusting some benefits to be sure such raises are affordable.

For newly non-exempt employees, employers may consider adjusting working hours or redistributing work responsibilities so those employees will generally work 40 or fewer hours per week. Employers will have to keep detailed records of hours worked to assure that newly overtime-eligible employees are paid correctly. Procedural changes should be considered for email, computer, phone and other work formerly exempt employees did outside regular work hours and workplaces, to be sure that any such extra work is carefully recorded or eliminated.

We shall continue to monitor developments in this area.

Contact Dave Smigelski (419-252-6289), Renisa Dorner (419-252-6274), or Cherie Wolff (419-252-6238) if you have questions on these or other wage-hour issues.