New Overtime Regulation Issued by The Department of Labor May Require Exempt Employees to be Reclassified as Hourly
Employers have until December 1, 2016 to comply with the new overtime regulation released by the Department of Labor in order for employees to be exempt from receiving overtime when working more than 40 hours in a week. To be exempt, employees must continue to meet the job duty requirements of the Executive, Administrative, Professional, and Computer, Outside Sales, or Highly Compensated Employee exemption and satisfy the increased salary requirements identified below.
What Are the Highlights of the Changes to the Overtime Regulation?
Although the job duties tests for the overtime exemptions have not changed, employees’ salaries must increase to $913 per week ($47,476 annually) by December 1, 2016. This is more than double the current minimum salary amount of $455 per week ($23,600 annually). Non-discretionary bonuses/commissions may satisfy up to 10% of the minimum compensation requirements if payments are made on at least a quarterly basis. Every three years the salary level will be increased to maintain a threshold equal to the 40th percentile of weekly earnings.
In order to meet the Highly Compensated Employee Exemption (which only requires employees to comply with a minimal duties test), employees’ salaries must increase to $134,004 annually. To meet this exemption, employees must receive a salary in the amount of $913 per week ($47,476 annually), without taking into account any bonuses/commissions, and receive additional compensation necessary to reach $134,004 annually. Every three years the salary level will be increased to maintain a threshold equal to the 90th percentile of weekly earnings.
How Should Employers Comply with the Overtime Regulation?
First, employers should determine whether to reclassify exempt employees that are receiving less than $913 per week as hourly (and pay overtime when employees work more than 40 hours per week) or increase their salaries to meet the $913 per week threshold.
Second, employers should review and update job descriptions to make sure that exempt employees perform all of the job duties to meet one of the exempt tests. If an employer realizes that the employee was/will be misclassified, now is a good time to change the classification to comply with the law.
Third, employers may want to update their employee handbooks to prevent employees from working overtime without advance approval.
Finally, there are many legal ways to comply with the law without increasing wages or changing working hours. For example, employers could calculate a new hourly rate that already takes into account a certain number of overtime hours to be worked each week. In order to ensure compliance with the overtime regulation, employers should seek the advice of an employment attorney.
For more information regarding this topic or other employment matters, please contact me at either 248.351.7060 or jreid@maddinhauser.com.