At DecisionHR we are continually consulting and planning with our valued clients. A significant part of our role is monitoring and analyzing industry and regulatory changes to help educate and prepare you for these changes and its impact on your business.
Recently, the Department of Labor (DOL) has finalized its overtime exemption rule for employees classified as exempt under the executive, administrative, or professional exemptions (also known as the white collar exemptions). The DOL is estimating that 4.2 million salaried employees will be affected by the rule change.
Employers will have six months to make adjustments to be in compliance with the new rule, which goes into effect December 1, 2016. There are four areas that may affect you as this rule goes into effect.
The following is an overview of the changes that may impact you. We highly recommend you to coordinate with DecisionHR and your business partner to develop a plan of action for any employees that will be affected by this new FLSA DOL ruling.
Salary Threshold
The final ruling will raise the minimum salary requirement that has been in place since 2004.
- Standard minimum salary. The salary threshold will increase from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).
- Highly Compensated Employees (HCE). The HCE compensation threshold will be increased from the current $100,000 per year to $134,004 per year which is equal to the 90th percentile of full-time salaried workers nationally.
Automatic Updates
The DOL will require an automatic update to the salary and HCE thresholds every three years, beginning January 1, 2020. Each update will maintain the 40th and 90th percentiles. The DOL will post the new thresholds 150 days in advance of their effective date, beginning August 1, 2019.
Duties Tests
No changes were made to the duties tests that determine whether or not an employee can qualify for an exemption. Employers may continue applying the same federal provisions that have been in effect since 2004. However, employers should be aware that state laws may require a more stringent analysis. An employee who qualifies as exempt under federal law does not necessarily meet the state requirements to be exempt (and could be owed overtime).
Bonus Pay
The final rule will allow up to 10 percent of the salary requirement to be met by non-discretionary bonuses, incentive pay, or commissions. These bonus payments must be made at least once every quarter.
Non-discretionary payments are those promised to employees to encourage them to work more efficiently or to remain with the company. Examples include bonuses for meeting production goals, retention bonuses, and commissions based on a fixed formula.
In contrast, discretionary bonuses (which may not be counted toward the salary) are at the employer’s discretion and do not follow any preannounced standards. An example would be an unannounced bonus or spontaneous reward for a specific act.
What’s next?
DecisionHR is here to assist and answer any questions you may have on the Overtime Exemption Rule. Employers have a bit more time than originally anticipated to comply with the new rules, so don’t hesitate – act now. Let’s discuss how this ruling will impact you and discuss any other issues you may have.
Contact us today.
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