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In May of this year, the Department of Labor updated the Fair Labor Standards Act and issued new final rules modifying the overtime exemption regulations. These new rules apply to “white collar” employees, which includes certain executive, administrative, and professional employees, as well as outside salespersons.

Photo courtesy of Sam Greenhalgh on Flickr

Hourly workers fall into a different category entirely and are generally eligible for overtime regardless of the amount of wages earned. Under the new rules, employers must pay overtime to any salaried employees who fail any of the following tests:

1. The employee must be salaried, which means they receive a predetermined fixed salary that cannot be reduced based on quality or quantity of work performed (Salary basis test).

2. The employee must be paid more than a specified salary amount. Prior to December 1, 2016, this amount is set as $455 per week, or $23,660 annually (Salary level test).

3. The employee must perform executive, administrative, and professional duties as outlined in the DOL regulations. There are relaxed duty definitions for highly compensated employees (Duties test).

Effective December 1, 2016 the following updates take effect:

1. In order to be exempt from the overtime pay requirement “white collar” employees must earn a minimum of $913 per week ($47,476 per year). (This is more than double the previous level of $455 per week, or $23,660 annually.)

2. Bonuses can make up ten percent of the minimum pay ($4,748) as long as they are nondiscretionary and paid at least quarterly. The pay schedule can be more frequent. These bonuses can be incentive bonuses tied to productivity and profitability.

3. A separate category, highly compensated employees, must be paid at least $134,004 per year to be disqualified. Highly compensated employees must still meet the weekly requirement of $913 per week.

4. Beginning January 1, 2020, these levels will be automatically updated every three years.

Additional things you should know:

1. No changes were made to the duties definitions.

2. The rules for salary basis or salary level do not apply to outside salespersons, therefore the rule changes do not affect outside salespersons.

3. Just because an employee is salaried does not automatically mean they are exempt. An employee may be salaried, but not exempt based on either the salary basis test or salary level test. Make sure to review each test to ensure an employee is exempt.

4. If you are a seasonal employer, you still must comply with these rules while your business is open.

5. An entire classification of employees does not necessarily have to be entirely exempt or eligible for overtime. Employees should be reviewed on an individual basis.

While it is a lot of information to process, what does it really mean for you and your business? It means you should have a plan to evaluate employees and implement any changes necessary no later than December 1, 2016.

You should include in your plan an assessment of current job descriptions and salary levels for employees, and be prepared to make changes that are beneficial to the economics of your business, whether that is increasing salaries, limiting hours to 40 per week, or paying overtime to previously exempt employees.

Of course, don’t forget that you aren’t left to navigate these changes on your own. MHFA is here to help. Please contact us if you have any questions or would like assistance in evaluating a course of action for your business.