The Department of Labor has more than doubled the salary threshold for exempt employees to $47,476, which means anyone earning less than that must be eligible for overtime if they work more than 40 hours a week.
The increase equates to a minimum salary of $913 per week, compared to the current $455 per week – or $23,660 a year.
This means if you employ someone who is currently an exempt manager and they earn less than $47,476, they will be non-exempt starting Dec. 1, unless you give them a raise. If they work more than 40 hours a week, regardless of their duties, you will be required to pay them overtime.
The move by the DOL means that you’ll have to change your payroll systems to comport with the new standard or risk breaching wage and hour laws at a time when lawsuits for these types of violations have been on a steep rise.
The DOL estimates that some 4.2 million workers will become eligible for overtime under the new regulations.
The last time adjustments were made to the white-collar overtime exemption, in 2004, there was a surge in wage and hour litigation.
Experts say that these changes will likely see a similar rise due to employers making mistakes about the way time is kept or misunderstandings among employees about how bonuses are calculated (see below). It is therefore imperative that you as an employer adjust your payroll systems so that they comply with the new regulations when they take effect in December.
Here’s what you need to know about the new regulations:
- Inclusion of bonuses
The final rule allows employers to include any bonuses and commissions (up to 10% of the salary) when calculating the salary figures.
- Duties test unchanged
The new regulation does not change the “duties test,” which specifies what kind of employees can be classified as exempt. This will still include:
Executive, whose primary duty is managing an enterprise, or managing a customarily recognized department or subdivision of the enterprise
Administrative, whose primary duty is the “performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers”
Professional, whose work requires advanced knowledge, defined by the DOL as “work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment”
Outside sales, whose primary duty must be making sales or obtaining orders or contracts.
Creative professional, whose primary duty is the “performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”
- Increase in salary for “highly compensated employees”
The new regulations also set the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004. That’s up from the current $100,00.
- Regular increases
The new threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country. Based on wage growth projections, that means the overtime threshold could rise to $51,000 by 2020, according to estimates from the White House.
There will be a lot to do and the deadlines for compliance may be tight. For example, to make cost-effective salary determinations for your company, you may need to take a close look at employee hours. To get a head start on the work, the law firm of Frankfurt Kurnit Klein & Selz recommends that employers consider the following steps now:
- Audit current classifications of employees as exempt or non-exempt and correct any misclassifications.
- Audit the hours worked by any current exempt employees who may fall beneath the proposed salary limit. If you do this, once the final rules are published, you will be in position to decide whether, for example, to increase certain employee salaries to a point at or above the new threshold – or to pay those employees overtime moving forward. If you decide to keep certain employees above the new salary limit (and not pay overtime), you may need to provide annual raises as the salary limit threshold changes.
- Determine how to best communicate changes to employees to maintain morale and reduce the risk of litigation.
If you have not done so you should seriously consider purchasing employment practices liability insurance. This coverage can provide legal defense coverage and settlement and award coverage for actions taken by your employees over wage and hour and other human resources decisions or actions, such as alleged discrimina