Who Is and Isn't Covered Under the New Overtime Rule
The Department of Labor's final rule expanding the federal overtime regulations is scheduled to take effect on December 1, 2016. For many companies, it may dramatically change the amount of their payroll or cause them to alter their workforce or operations. But the overtime rule won’t necessarily impact all exempt employees, so make sure you understand which employees may be affected.
Overtime Rule at a Glance
Non-exempt employees still must be paid time and a half their regular rate of pay for any hours worked over 40 in work week. For example, if an employee normally receives $20 per hour and works 45 hours in the workweek, and no other compensation is received, the employee must be paid $30 per hour (1½ times their regular rate of pay) for five hours. This rule has not changed. What has changed is the salary threshold for white collar exempt employee subject to the salary test.
Employees Impacted by the New Overtime Rule
An employee who is paid on a salary basis at a threshold that meets or exceeds the current salary threshold of $455/week and who meets the duties test of either the executive, administrative or professional white collar exemptions may be impacted by the new overtime rule where they are earning less than the new salary threshold of $913/week or $47,476 if they work the entire year.
Under the provisions of the Final Overtime Rule, an employer may apply incentive payments including non-discretionary bonuses and/or commissions to up to 10 percent of the salary threshold where those payments are made on at least a quarterly basis. And finally, under the Final Overtime Rule, the DOL will automatically raise the weekly salary threshold amount every three years, beginning January 1, 2020.
Highly Compensated Employees (HCEs)
There is one additional type of employee who may be impacted by the Final Overtime Rule, those employees who currently meet the Highly Compensated Employee exemption. This exemption requires the employee to be paid on a salary basis, receive a weekly salary of at least $455/week, earn an annual salary of at least $100,000/year and customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. Under the Final Overtime Rule, these employees must continue to meet the applicable duties test, must earn an annual salary of $134,004 and a weekly salary of at least $913.
Retails Commissioned Employees
If you are a retail establishment, employees paid on a commissioned basis who meet the exemption under Section 7i from overtime under the Fair Labor Standards Act would not be impacted by the Final Overtime Rule.
The Outside Sales white collar exemption does not have a salary basis requirement and therefore employees who meet this exemption also are not impacted by the Final Overtime Rule.
Next Steps for Employers
The new overtime rule may require that you make adjustments in pricing, staffing, and in other matters to cover the potential increases in payroll should you decide to increase salaries to retain the exempt status of your impacted employees or potential increase in overtime costs where these employees are transitioned to non-exempt status and become eligible for overtime pay.
Of note, independent contractors are not covered under the Fair Labor Standards Act and therefore not eligible for overtime pay. However, you cannot merely call a worker an independent contractor in order to avoid overtime pay requirements if the worker, in fact, meets the criteria of a covered employee. Consider your options carefully before moving forward to ensure your full compliance with the new overtime rule.