On May 18, the U.S. Department of Labor (DOL) released its final rule updating overtime regulations. Before you even ask, YES, this is incredibly important.
The overtime regulations govern which executive, administrative and professional employees (sometimes referred to as “white-collar workers”) are allowed minimum wage and overtime pay protections under the Fair Labor Standards Act.
The current state of things …
The current rules have been around a long time. These rules state that employees subject to overtime regulations must be paid at least one and a half times their regular wage rate for any hours above 40 in a workweek.
Yes, there are exceptions (per usual). Any employee is exempt from the overtime regulations if they meet all of the following criteria:
- The employee is salaried. Read, they have a fixed income amount that can’t be reduced regardless of variations in quality or quantity of work performed.
- The employee is paid at least $455 per week, which amounts to $23,660 a year. This is known as the salary threshold.
- The employee primarily performs executive, administrative or professional duties.
So what’s changing?
The newly proposed regulation directly affects the salary threshold. Effective December 1, 2016, the new salary threshold will be $913 per week, which amounts to $47,476 annually. Yes, that’s almost double the previous threshold.
The salary threshold will then be updated automatically every three years. The first update will take place on January 1, 2020, when the salary threshold will change to approximately $51,000 annually.
Why should I care?
If you’re currently utilizing salaried employees to maintain customer deadlines, maintain service or for any other reason during certain times of the year, you may be in for a world of hurt. This ruling and the change of the salary threshold amount is expected to make 4.2 million additional workers eligible for overtime pay at 1.5 times an employee’s normal salary, per hour.
Another study, by the Economic Policy Institute, estimates that the raised threshold will give 12.5 million employees (a.k.a. 23 percent of salaried workers) a right to overtime pay.
“Although businesses have had a lot of practice over the years adjusting minimum wage increases … this rule change will be a significant shift for many small businesses and entrepreneurs” (source).
So how do I fix it?
Well the good news is that you don’t have to comply tomorrow. With an effective date of December 1, you have time to take some steps, like …
- Looking at your current pay rates for employees, as well as overtime worked to determine the potential financial impact.
- Review employee duties to see where workloads may be shifted to help minimize the amount of overtime your employees need to work.
- Don’t forget about your people. Make sure you’re chatting with HR personnel (or consultants) since this ruling can have some big impacts on how you track hours, the base pay of affected employees and the amount of hours they’ll be able to work.
The change allows employers to include nondiscretionary bonuses and incentive payments (including commission) to satisfy up to 10 percent of the new salary threshold. You do, however, have to pay these amounts on a quarterly or more frequent basis though.
A version of this blog first appeared on eidebailly.com.