UPDATE – FEDERAL INJUCTION FILED TO PREVENT ENFORCEMENT OF NEW OVERTIME RULES

Beginning December 1st of this year, the new Department of Labor overtime rules will take effect. These new rules will more than double the minimum weekly salary threshold under which salaried employees can be exempted from overtime pay.

Currently, the salary threshold is set at $23,660 per year ($455 per week). The new salary threshold set that will become effective on December 1st is $47,476 per year ($913 per week).

These new rules will require overtime to be paid to salaried employees who earn less than the new minimum threshold, and who do not qualify for any other exemption. Employers will need to evaluate how to adjust compensation for these affected workers. Below are a few possible solutions:

1. Increase the employee’s salary level to at least $47,476 ($913 per week).

2. Covert the salaried employee to hourly pay (by dividing the employee’s current weekly salary by either 40 hours or by an average of weekly total hours worked). This would require tracking hours and paying overtime. This may result in increased pay if the employee routinely works more than 40 hours per week unless a lower hourly wage rate is selected.

3. Make no change to the salary amount, but begin tracking employee hours. Each work week the employee’s actual pay is compared to pay he/she would have received if paid hourly (the hourly rate being the weekly salary amount divided by 40 hours). If the employee’s actual pay is less than what he/she would have been paid if paid hourly (including any overtime pay) the difference must be paid to the employee on the next pay check.

The new rules do not affect other exempt employee requirements, so farm workers and certain “white-collar” workers (among others) will still be exempt from the overtime rules.

When calculating an employee’s total salary, only direct salary may be used. The value of benefits, such as health insurance, cannot be counted.  Additionally, nondiscretionary incentive pay (i.e. bonuses, commissions, etc.) can be used to satisfy up to 10% of the new threshold, so long as it is paid out at least quarterly.

In addition, the new rules provide for automatic increases in the salary threshold every three years. The increases will be based on data gathered on compensation for salaried workers.

Please let us know if you have any questions regarding the new rules. We are happy to review your payroll and analyze the potential impact the new rules may have on your business and help you determine the best course of action.