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Updated Overtime Regulations Effective December 1, 2016

Effective December 1, 2016, new Department of Labor (DOL) rules define the overtime exemption thresholds for “white collar workers.”

This update, resulting from the President’s 2014 request, provides employers with new guidelines to determine whether an employee working overtime hours must be paid at time-and-a-half for any hours exceeding 40 hours.

Salaried white collar employees paid below the updated salary level are generally entitled to overtime pay, while employees paid at or above the salary level may be exempt from overtime pay if they primarily perform certain duties. Three tests determine an employee’s eligibility for the exemption. These are:

  1. Salary Level Test – How much the employee earns
    • Measurement: employees earning  at least $913 per week ($47,476 per year) or $134,004 for highly compensated employees (automatic updates to these salary levels will occur every three years beginning in January 1, 2020)
  2. Salary Basis Test – Type of pay scale - pay is on a salary or fee basis rather than hourly
    • Measurement:
      • 90% of pay must be based on salary or a fee
      • non-discretionary bonuses and incentive payments (including commissions and nondiscretionary bonuses tied to productivity and profitability) may satisfy up to 10 percent of the standard salary level
  1. Duties test – Definition: the type of duties the employee primarily performs
    • Measurement: Duties must be commensurate with the performance requirements of an exempt executive, administrative or professional employee

According to the DOL, the employer may implement in the following ways:

  • increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
  • pay an overtime premium of one and a half times the employee's regular rate of pay for any overtime hours worked;
  • reduce or eliminate overtime hours;
  • reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
  • use some combination of these responses

Currently, 26 states are suing the Department of Labor for the change in overtime rules. Among other things, the States argue that the DOL is in violation of the 10th amendment, which states that “powers not delegated to the United States, and not prohibited to the States, are reserved for the States.”

Additionally, H.R.6409 was introduced, voted on, and passed the House last week. This bill calls for a delay in the implementation of this rule until June 1, 2017. Unfortunately, with little active working days left in Congress and the Presidential offices’ intention to veto, it is unlikely there will be any changes forthcoming. Therefore, employers should plan to comply by December 1, 2016.

Additional resources regarding the overtime rule:

Questions and answers:

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