The wait is over and the new overtime regulations are finally here. Although it will take some time to digest the more than 500 pages of the Final Rule, based on the DOL’s fact sheet, here is what you need to know:
- Effective Date: The rule becomes effective December 1, 2016, so you have some time to review your exempt employees and make necessary adjustments. The periodic adjustment to the salary level will only occur every 3 years, so you won’t have to reassess your salary levels again until January 1, 2020. DOL promises to give everyone a 150 day notice before each 3 year change.
- Salary Threshold for Executive, Administrative and Professional (EAP) Exempt Employees: The salary threshold for EAP exempt employees will initially be $47,476 a year/$913 a week (up from the prior $23,660 a year/$455 a week), which is slightly lower than anticipated. The DOL opted to use the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South, rather than a national number. If you have employees in American Samoa or in the motion picture industry, there are changes to those special and base rates.
- Highly Compensated Employees (HCEs): The salary threshold for HCEs increases from $100,000 to $134,004, which is pegged at the 90th percentile of full-time salaried workers nationally. Your HCEs still have to meet a minimal duties test. Also, you can still use bonus systems with your HCES as long as they are getting the $913 a week.
- Duties Tests: No proposed changes to the duties test. Whew!
- Bonuses and Commissions: A slight gift—the Final Rule allows you to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level for EAP exempt employees. Not a huge gift but a change from the proposed rule. To credit nondiscretionary bonuses and incentive payments, you have to make them at least quarterly and there is some ability to make a “catch up” payment. Keep in mind, however, that you can only use the bonus for 10% of the weekly salary amount. So, you still need to pay the employee at least $821.70 a week (without the bonus) and you need to make sure that the bonus is going to get them to the new threshold each quarter.
If you haven’t already, you need to review your exempt employees and decide who stays exempt and who doesn’t. If you can’t increase the annual salary to meet the exemption, you need to figure out the best nonexempt status to suit your needs and consult your local employment lawyer to be sure you know your options.