The Department of Labor (DOL) has effectively doubled the current $23,660 salary threshold. This means that exempt administrative, executive and professional employees will all be eligible for overtime pay providing they don’t earn more than $47,476 per year ($913 per week). Employees that earn that amount or less will be eligible for overtime pay when they work more than 40 hours within a workweek. This new salary threshold will go into effect on December 1, 2016.
This new $47,476 salary threshold will automatically update every three years based on wage growth in order to keep current with inflation rates.
The DOL has decided not to make any changes to the ‘duties test’. This test was designed to analyze an employee’s actual duties in order to determine whether he or she is exempt from overtime pay as an executive, administrative, learned professional, computer and/or outside sales employee.
Some key changes:
- The $47,476 salary threshold will be changed every three years. This will be based on the 40th percentile of full-time salaried workers in the country’s lowest income Census region (currently the South). The next update will occur Jan. 1, 2020.
- Currently, nondiscretionary bonuses and commissions don’t count toward the salary threshold. These new rules allow up to 10% of the salary threshold to be met by commissions and nondiscretionary bonuses or incentives—for example, those tied to productivity and profitability—as long as the variable pay is issued at least quarterly.
- The new rules raise the “highly compensated employee” threshold from $100,000 to $134,004 per year. This figure will also be reset every three years.
Employers may comply by:
- Increasing the salaries of exempt administrative, executive and professional employees to meet or exceed the new threshold, thus preserving exempt status under the Fair Labor Standards Act
- Paying overtime—one-and-a-half times the employee’s regular rate of pay—for any hours worked in excess of 40 per week
- Reducing or eliminating overtime hours
- Reducing base salary and adding pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant
- Using some combination of those strategies
The Department of Labor last revised the overtime rules in 2004, the only time they have been officially changed since the FLSA was enacted in 1938. The current effort began in March 2014, when President Obama ordered the Department of Labor to “update and modernize America’s overtime pay system.” Proposed rules were finally issued in June 2015.
Should you have any additional questions regarding this or other employee topics, contact the professionals at CyQuest for help!