The U.S. Department of Labor last week released its Final Rule concerning the expansion of federal overtime obligations for employers. The new overtime rule will go into effect on December 1, 2016, and will have substantial effect on employer pay practices.
The biggest change will be a higher minimum salary needed to rely upon one of the so-called white collar exemptions. The minimum salary necessary for those employees in positions meeting the bona fide executive, professional and administrative exemptions was more than doubled from $23,660 to $47,476.
In addition, for employees who are exempt under the so-called "highly compensated employee" exemption, the minimum compensation has been raised from $100,000 to $135,004 per year.
Although it raised the minimum salary, the new rule allows up to ten percent (10%) of that total to come from non-discretionary bonuses, incentive payments, and commissions, if paid at least quarterly.
The duties tests that are part of the bona fide executive, professional and administrative exemptions and "highly compensated employee" exemption did not change.
Moving Forward. Because the rule goes into effect December 1, 2016, most employers will wait until Fall 2016 before finalizing and implementing changes based upon the new rule.
Pay practices concerning non-exempt employees need not be changed, nor do practices concerning employees already making more than the new and higher salary threshold.
As to exempt employees making more than the current, but less than the future minimum salary, employers are well advised to: (1) identify each such employee and position through payroll or HRIS reports; (2) move each employee and position into compliance under the new rules, by December 1, 2016.
For any exempt employees making more than the current, but less than the future minimum salary, an employer has several options: a) raise the base salary or total compensation package above the minimum; b) convert the position from exempt to non-exempt with the expected annual base hourly pay equaling the prior base salary; c) convert the position from exempt to non-exempt with the expected annual base hourly pay plus expected overtime pay equaling the prior base salary; d) implement a larger organizational re-design for that business unit, with all remaining positions meeting the new standards.