On May 18, 2016, the United States Department of Labor (“DOL”) published its Final Rule modifying its Overtime Regulations. The new rule raises the bar for a “white collar” employee to qualify as an employee exempt from overtime requirements.
Under the old rule, employees would qualify for the “white collar” exemption if they satisfied the following:
- The employee’s job duties primarily involved executive, administrative, professional, or outside sales as defined by DOL, referred to as the “duties test” and;
- The employee was paid a fixed salary of at least $455 per week or $23,660 annually, or;
- The employee made at least $100,000 annually and was considered a Highly Compensated Employee.
The DOL new rule makes the following changes to the salary basis test for the “white collar exemption”:
- Raises the minimum annual salary requirement to $913 per week or $47,476 annually, or;
- Increases the compensation requirement of employees who qualify as Highly Compensated to $134,004 annually.
The new rule also establishes a process to automatically change the minimum annual salary requirements every three years with the first increase on January 1, 2020, based on an inflation measure.
In addition, the new rule allows certain bonuses and incentive payments, as defined in the rule, to count toward up to 10 percent of the new salary requirement.
Employees who earn more than the new salary threshold are still subject to the duties test to determine eligibility for overtime. The new rule did not make any changes to the duties test.
The effective date of the rule is December 1, 2016.
For those employees who do not meet the new salary threshold, employers will have to choose a strategy which could include paying the employee time and a half for overtime hours worked; raising the employee's salaries above the new threshold, or possibly limiting the employee's hours to 40 hours per week.