By: Shelbie J. Byers, Drewry Simmons Vornehm, LLP
The U.S. Department of Labor issued the final version of the overtime exemption rule today, which raises the minimum salary threshold required to qualify for a “white collar” exemption (i.e., the executive, administrative, and professional exemptions) to $47,476.00 per year – more than twice the current annual level of $23,660.00. Section 13(a)(1) of the Fair Labor Standards Action defines certain white collar exemptions, including, among others, the executive, administrative, and professional exemptions. While each of the exemptions has various duties tests, central to all of them is also a salary basis test. The salary basis test had previously been set at $455.00 per week or $23,660.00 per year, this new rule, effective December 1, 2016, raises the weekly amount to $913.00 per week. The change will make millions of workers eligible for overtime who had previously been exempt from overtime pay. By December 1, 2016, workers will need to either be reclassified as non-exempt and paid overtime, or receive an increase in their salary to meet the new minimum threshold requirement.
Here are a few compensation and hours areas employers need to start considering now in preparation for the new compensation threshold:
- Identify currently exempt jobs with salaries that fall below the proposed new salary threshold for exempt employees.
- Determine whether employees close to the new threshold will get a salary increase to maintain exempt status, or whether the approach will be to reclassify as nonexempt all or some employees whose current salary is below the new minimum.
- Understand now how many hours each employee is actually working per week, and use that as a model for payroll budgeting going forward.
- For newly reclassified employees, determine whether the hourly rate will be the current weekly salary divided by 40, or whether there will be an effort to replicate the current pay structure by lowering the hourly rate to account for overtime.
All employers with exempt employees utilizing one of the white collar exemptions will need to globally review their exemptions prior to December 1st. It is estimated that over 5 million currently exempt salaried employees will be affected by the new increased salary threshold. If you or your business need assistance in reviewing employee classifications, an overtime analysis or review of policies, procedures and job descriptions before the new rules go into effect, contact Shelbie J. Byers or your regular DSV contact and we would be happy to assist you.