Proposed Changes To Overtime Rules
A new Department of Labor (DOL) proposed rule (the Rule) will revise current overtime exemption requirements under the Fair Labor Standards Act and expand overtime eligibility to millions of employees. Estimates are that employers will face direct costs between $239.6 and $155.3 million per year once this Rule takes effect.
On June 30, 2015, the DOL rolled out information regarding a Proposed Rule that has not yet been published but will likely go into effect in 2016.
Currently employees who are paid at least $455 per week ($23,660 per year) and perform executive, administrative, professional, or computer professional type work may be exempt from overtime pay.
In 2016 the Proposed Rule will increase the pay threshold to an estimated $970 per week ($50,440 per year) a change that the DOL estimates will expand overtime eligibility to nearly five million employees within the first year of implementation.
This will likely give employers headaches for years to come, as the increased threshold is not a one-time event.
Specifically, the Rule will include “a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the Consumer Price Index for Urban Consumers.”
The Rule proposes a standard salary level of the 40th percentile of weekly earnings for full-time salaried employees.
This means that employers will have to engage in a yearly review of their employees’ pay to determine overtime eligibility.
The DOL is waiting to determine whether to allow nondiscretionary bonuses, such as performance bonuses, to be included in determining whether an employee’s salary is sufficiently high for the overtime exemption.
In addition to increasing the required salary for the exemption, the Rule will also alter the salary required to be considered a highly compensated employee. Currently, the test for exemption is relaxed for employees who are paid at least $100,000 per year.
The Proposed Rule is expected to increase the required amount to be considered a highly compensated employee to $122,148 per year (the 90th percentile for full-time salaried employees).
We don't know what changes lie ahead for the standard duties test used for determining whether an employee performs exempt work, the DOL seeks comment on “whether the current duties tests are working as intended.”
We will keep you updated in the upcoming weeks and are available to review your current pay practices to avoid any potential wage and hour claims in preparation for the rule’s expected implementation in 2016. In the meantime, you can reach us at: 888.713.7567 or gr@ahdory.com.