A new rule was announced by the White House Tuesday, May 17, 2016 (under President Obama’s direction)- any employee making a salary of less than $47,476 will automatically qualify for overtime pay (when working more than 40hrs wk). This will almost double the current $23,660 threshold. It is expected that over 4.2 million Americans, will qualify for this boost in their wages. This ruling will go into effect on December 1, 2016.
To get further clarification, let’s take a look at the following information taken from The United States Department of Labor’s website:
How do the current regulations, proposed rule and final rule compare?
Current regulations (2004 until effective date of Final Rule, 2016)
HCE Total Annual Compensation Level
Every 3 years, maintaining the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region, and the HCE total annual compensation level at the 90th percentile of full-time salaried workers nationally.
No provision to count nondiscretionary bonuses and commissions toward the standard salary level
Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly.
Standard Duties Test
See WHD Fact Sheet #17A for a description of EAP duties.
No changes to the standard duties test.
How will employers implement the updated salary level requirement established in this Final Rule?
Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:
- 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.
The circumstances of each affected employee will likely impact how employers respond to this Final Rule. For example, employers may be more likely to give raises to employees who regularly work overtime and earn slightly below the new standard salary level, in order to maintain their overtime-exempt status so that the employer does not have to pay the overtime premium. For employees who rarely or almost never work overtime hours, employers may simply choose to pay the overtime premium whenever necessary. The Department accounted for these (and other) possible employer responses in estimating the likely costs, benefits, and transfers of the Final Rule.
Nothing in the rule requires employers to change employees’ pay to hourly from salaried, even if the employees’ classification changes from exempt to overtime eligible. Employers may choose options #2-#4 above while continuing to pay newly overtime eligible employees on a salaried basis.
When will these changes take effect?
The effective date of this Final Rule is December 1, 2016. On that day, the new standard salary level ($913 per week or $47,476 per year) and HCE total compensation requirement ($134,004 per year) will take effect. Future automatic updates to these thresholds will occur every three years, beginning on January 1, 2020.