On May 18th, the U.S. Department of Labor (DOL) released new rules regarding the requirement for overtime pay for white collared salaried employees who do not primarily perform executive, administrative, or professional duties. Prior to this new ruling, such employees who made more than $23,660 per year ($455 per week) were not entitled to time-and-a-half pay for hours worked in excess of 40 hours per week. The new ruling, which is effective on December 1st, 2016, raises that exemption to $47,476 per year ($913 per week). In addition, the ruling increases the level for highly compensated employees who will be ineligible for overtime pay from $100,000 per year to $134,004 per year. Nondiscretionary bonuses and commissions can satisfy up to 10% of the minimum salary requirement. All of these levels will be automatically increased every three years (beginning on January 1, 2020), and will be based on national salary thresholds.
If an employer believes that the employee is exempt from the overtime rules (over $47,476 in annual salary), the employer must pay that employee at least 90% of the minimum salary level, or $821.70 per week. If at the end of the quarter, the employee has not been paid in salaries, bonus payments and commissions totaling at least $11,869 ($47,476 divided by four), the employer has to make up the overtime pay shortfall in the first pay period of the next quarter. This make-up payment does not count as compensation, for calculation purposes, in the following quarter.
As a result, employers will have to identify the employees who may need to be reclassified. Employers will then have to determine if they will:
- Reduce workers’ weekly hours to avoid paying overtime rates,
- Reduce pay rates on base salary and pay over-time wages for time worked in excess of 40 hours, or
- Increase their salary to the new exempt salary level.
There are certain exceptions for businesses and Non-Profit Organizations that have under $500,000 of annual gross sales from these new rules. Other exceptions may apply and the rules can become complex based on individual circumstances.
Our firm is well positioned to discuss all aspects of your employee payroll policies. If you have any questions about this new law, please contact us.