Today the Department of Labor (DOL) finally released their much-anticipated overtime rule. This new regulation has been put in place to transform mid-level, salaried FLSA-exempt positions into hourly, non-exempt, overtime-eligible positions.
Listed below are the key elements of the new regulation you need to know:
- Salary Threshold Changed to $913/week ($47,476 per year)
The minimum salary level required for the most popular FLSA overtime exemptions will increase from $23,600 per year to $47,476 per year, meaning, if an employee’s annual salary is less than $47,476 per year, his or her position will likely have to be converted to overtime-eligible status or employers will need to consider alternative options to reach the threshold. This means salaried exempt employees earning under $47,476 per year must be paid an overtime rate for any overtime hours.
- Automatic Salary Threshold Increases Every 3 Years (Not Annually) to Maintain Level at 40th Percentile in Lowest-Wage Census Region
The minimum salary level for these FLSA overtime exemptions will automatically increase every three years to match national wage growth. This number is based on the 40th percentile of the lowest income region of the country, currently the South. Based on current compensation trends, the DOL has projected the minimum salary level will rise to $51,000, scheduled to occur on January 1, 2020.
Up to 10% of an employee bonus can count towards their threshold number. The 10% bonus must be quarterly or more frequent – annual bonuses are still not counted toward this number. Example: An employee earnings $45,000/year with a 2.5% quarterly bonus, would earn $49,500/year and could be exempt.
The “duties tests” for FLSA overtime exemptions will not change.
- Effective Date: December 1, 2016
The new regulations will be effective December 1, 2016. Employers need to consider identifying and creating plans for their affected employees. This includes updating information from job descriptions and company handbooks to new overtime policies and beginning to track employee hours, if necessary.
The Society for Human Resource Management is hosting a webcast, “Understanding DOL’s New Overtime Rule,” tomorrow at 2:00 p.m. EDT should you want more information.
If you need assistance moving forward with this new rule by identifying affected employees, choosing to reclassify employees, or believe this could be an opportune time to conduct a broader review of your compensation practices, please contact your Dean Dorton advisor.