New Overtime Exemptions: The Exceptions to Overtime Just Became More Exceptional!
The Department of Labor just announced its updates to the overtime exemptions effective December 1, 2016. These updates (“Final Rule”) greatly impact many businesses, resulting in more than 4 million workers who are currently overtime-exempt eligible for overtime pay. Federal labor law requires that all employees receive at least a minimum wage and that most employees, save a “few exceptions,” receive overtime compensation. The Final Rule makes the overtime exceptions more exceptional.
Such overtime exceptions include the Executive, Administrative, and Professional employee “exemptions.” Such employees are exempt from overtime if: 1) he/she is salaried and that salary is not subject to reduction based on quality or quantity of work; 2) he/she receives a “minimum standard salary level;” and 3) his/her job duties primarily involve executive, administrative, or professional duties as defined by the regulations. While the Final Rule makes no changes to the job duties test, it more than doubles the minimum standard salary level from $455 to $913 per week ($23,660 to $47,476 annually).
The Final Rule provides another significant change in that it allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the minimum standard salary level. However, in order to use these bonuses or payments to count towards the minimum salary, they must be paid on a quarterly or more frequent basis.
The Final Rule also increases the total annual compensation requirement for an exempt “Highly Compensated Employee” (“HCE”) from $100,000 to $134,004. Employees paid at above that level need only meet a simplified job duties test. Employers can continue to use bonuses and incentives to count towards the total annual compensation requirement for the HCE. The other noteworthy change made by the Final Rule is the indexing of the salary levels.
It is advisable that employers thoroughly audit employee classifications and compensation packages now, as the Department Labor has built in a 200-day implementation period. Every three years the salary levels will automatically update to correlate with the lowest-wage Census region, currently the South. Employers should also work closely with labor and employment counsel to effectively implement such processes in compliance with the Final Rule.