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On May 17, 2016, the Department of Labor issued its long awaited changes to the overtime exemption rule.
As of December 1, 2016, employers will have to pay salaried, exempt workers a minimum of $47,476 per year ($913 a week) in order to qualify for an exemption of overtime. This doubles the current salary threshold. This means if an employee does not earn at least $47,476 annually as of December 1, they will have to be paid overtime. Those earning over $47,476 are not automatically exempt from overtime as employers must then continue to apply the duties test to determine overtime eligibility. There are a handful of exemptions including teachers, the motion picture industry and outside sales people but the vast majority of positions will be affected by the change to salary threshold. The new rule will also allow employers to use nondiscretionary bonuses and commissions to satisfy up to 10 percent of the new standard salary level test.
The new rule also mandates that the salary threshold will be automatically updated every three years. Each update will hold the salary threshold at the 40th percentile of full-time salaried workers in the lowest income region of the country. Therefore, estimates expect the salary threshold to rise to more than $51,000 in 2020.
There are also changes to what is considered a “highly compensated employee” threshold. This will be raised from $100,000 currently to $134,004. This threshold is intended to ease the burden on employers in identifying overtime eligible employees since it’s likely that workers earning above this salary level perform job duties that would be exempt from overtime requirements.
Finally, there will be no changes to the duties test to determine overtime exemption.
Symmetry Consulting will host a series of webinars over the coming months to help explain the coming changes and options for your business. We suggest you take this opportunity to examine all your positions to ensure that each employee is classified correctly. Fines and penalties for incorrect classifications can be substantial and we expect the government to step up audits following the passage of this new rule.