Are You Ready for the Upcoming Significant Changes to Overtime Regulations?

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Are You Ready for the Upcoming Significant Changes to Overtime Regulations?

Beginning in December 2016, millions of more employees will become eligible for overtime pay. As a result, employers need to start preparing for the changes now. On December 1, 2016, significant changes to overtime regulations, known as the Final Rule, will become effective by the Department of Labor’s recent revisions to the Fair Labor Standards Act. These revisions impact overtime payments to your exempt employees under the executive, administrative or professional category, as well as highly compensated employees.

Currently, the salary threshold for executive, administrative, or professional exempt employees is $23,660 per year or $455 per week. In December, this threshold will more than double and increase to $47,476 per year or $913 per week. It is important to recognize that overtime-eligible employees may be paid a salary and do not need to be paid on an hourly basis to qualify. Unlike current regulations, in determining whether an employee’s income qualifies for overtime, employers will now include bonuses and commissions up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, the Final Rule requires that such payments be paid on a quarterly or more frequent basis. After the changes take effect in December, the salary threshold will automatically update every three years based on wage growth, beginning on January 1, 2020. The increase will be published by the Department of Labor 150 days prior to the effective date. Consequently, employers need to remain diligent in staying up to date with future changes.

The revised regulations will also affect the highly compensated employees’ salary threshold, which will increase from $100,000 per year to $134,004 per year. To qualify as a highly compensated employee, the employee must receive at least $913 per week as a base salary, with commissions, nondiscretionary bonuses and other nondiscretionary compensation comprising the remaining salary. Below is a table summarizing the changes relating to both the executive, administrative and professional exempt employees and highly compensated employees (“HCE”).

The new regulations extend overtime protections to more than 4.2 million Americans. Employers only have six months to review current policies and make the appropriate adjustments prior to the effective date so it is important for all employers to begin preparing now. The first step is to identify employees that will be impacted by the Final Rule. Next, employers need to review current policies and procedures pertaining to overtime and salaries to determine what revisions need to be made. Employers should consider options such as raising salaries to maintain exemptions; paying current salaries overtime of one and a half times the employee’s regular pay after 40 hours; reorganizing workloads, adjusting schedules or spreading hours worked to reduce or eliminate overtime hours; and/or adjusting wages to fit your budget. Finally, make sure you communicate with your employees. Reassure employees that you are monitoring the new developments to the overtime regulations and taking steps to ensure compliance.

For more information about the Final Rule or for assistance in preparing for the upcoming changes, contact Elysse A. Elder at Elysse@CraryBuchanan.com.

Current regulations (2004 until effective date of Final Rule, 2016)

Final Rule

Salary Level$455 weekly$913 weekly

40th percentile of full-time salaried workers in the lowest-wage Census region (currently the South)

HCE Total Annual Compensation Level$100,000 annually$134,004

90th percentile of full-time salaried workers nationally

Automatic AdjustingNoneEvery 3 years, maintaining the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region, and the HCE total annual compensation level at the 90th percentile of full-time salaried workers nationally.
BonusesNo provision to count nondiscretionary bonuses and commissions toward the standard salary levelUp to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly.
Standard Duties TestSee WHD Fact Sheet #17A for a description of EAP duties.No changes to the standard duties test.