The Department of Labor has finally issued a long anticipated rule raising the “white collar exemptions”, that is, the salary exemption level for executive, administrative, and professional workers. Traditionally, salaried administrative workers were not eligible for overtime pay unless their salary was very, very low. Beginning December 1, 2016, the overtime eligibility threshold for salaried employees will raise to $47,476 per year or $913 per week. What this means is that salaried employees making less than $47,476 yearly will be entitled to overtime pay for working more than 40 hours in a work week.
The exemption threshold had not been updated since 2004. The new rule provides for automatic updates every three years to maintain the exemption threshold at the 40th percentile of full time salaried workers’ earnings in the lowest wage region according to the U.S. Census.
Plan now to be in compliance on December 1. Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt. There is actually a three part test:
- The employee is paid a salary as opposed to an hourly wage;
- The salary must be at least $47,476 annually for a full time worker to be exempt; and
- The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.
Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.
The Department of Labor enumerated four options for employers to comply with the new rule:
- Raise salaries to maintain the exemption;
- Keep current salaries, and plan to pay overtime;
- Adjust workloads and schedules so that employees are not working overtime; or
- Adjust wages by converting salaried employees to hourly.
Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or conversion from salaries to hourly pay. There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor. Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.
Businesses have only a few months to plan for the new rule. Start analyzing your options now. A business lawyer can help your business make the transition to the new rule.
The Department of Labor has published this fact sheet for employers: https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf