The Department of Labor’s amendments to the Fair Labor Standards Act overtime regulations are scheduled to become effective December 1, 2016. Employers should review their exemption classification decisions to ensure they comply with the new rules.
The biggest changes to the overtime rules are increases to the minimum salary thresholds, modifications to the factors that contribute to satisfying the salary minimum, and automatic updates to the minimum salary thresholds.
Increased Minimum Salary Thresholds for “White Collar Exemptions”
The most significant change to the overtime regulations—and the most time-sensitive issue for employers looking to comply by December 1—is an increase to the minimum salary amount needed to qualify for certain “white collar exemptions.”
Under the revised regulations, in order to qualify for the administrative, executive, or professional exemptions, an employee must be paid a salary of at least $913 per week ($47,476 per year), which is a significant increase from the current $455 per week ($23,660 per year). The rules also raise the minimum salary required to qualify for the Highly Compensated Employee (HCE) exemption to $134,004 per year (up from $100,000). Employees must meet these minimum thresholds to be considered exempt from overtime.
Bonus and Incentive Payments May Satisfy a Portion of the Salary Thresholds.
For administrative, executive, or professional employees, the new rules allow up to 10% of the new minimum salary amount to be satisfied through incentive payments, such as commissions and non-discretionary bonuses. For example, an employee may qualify for exempt status if he or she is paid a salary of $821 per week ($42,729 per year), so long as he or she also receives at least $4,747 in commissions or bonuses (assuming the employee also satisfies the duties test). To satisfy this new rule, commissions or bonuses must be paid at least quarterly. If the employee’s actual earned commissions or bonuses fall short of the amount needed for exemption, the new rule allows employers maintain the employee’s exempt status by making one “catch up” payment in the first payroll following the end of the quarter.
Automatic Updates to the Minimum Salary Thresholds.
Starting January 1, 2020, the minimum salary levels will recalibrate automatically every three years to account for wage growth. The DOL estimates these thresholds will rise to roughly $51,000 and $147,500 in 2020. It will publish advance notice of the new levels in the Federal Register and on its website at least 150 days before they go into effect.
President-Elect Trump and the New Overtime Regulations
Many clients have been asking how the recent election of Donald Trump to the White House will impact the new overtime regulations or whether President-Elect Trump could repeal the rules once he takes office. Although President-Elect Trump has stated that he will have a very pro-business administration, it is unlikely that his election will have any immediate impact on the overtime regulations amendments. If the Trump administration were to repeal or amend these rules, any changes would need to go through a lengthy rule-making process, which would take between 18-24 months. Any possible relief that employers could receive from the Trump administration is unlikely to happen for quite some time.
Complying with the Revised Overtime Regulations
With a little under two weeks until the amendments become effective, employers should review their exemption classifications and take action to make sure they are in compliance with the new overtime rules when they take effect on December 1. Keep in mind that the new overtime rules provide employers with an opportunity. Although the new rules do not alter the DOL’s “duties test” for determining whether an employee’s job duties make him or her eligible for exempt status, now is an excellent time for employers to review their exemption classifications for all employees and tackle other compliance concerns that may have gone unaddressed.
At a minimum, employers should conduct an internal audit and review employees who are currently classified as exempt but will lose the exemption based on the new salary thresholds—i.e., employees earning between $23,660 and $47,475 per year. Employers will need to decide whether to raise these employees’ salaries to satisfy the new minimum or reclassify them as nonexempt.
There are many factors to consider and numerous ways to address reclassification issues. We covered a few options in a previous issue of Employer Advisor (which can be accessed on our website). For specific questions or guidance regarding your employee classification or the new overtime rules, please contact Andrew Chase (firstname.lastname@example.org) or any attorney at Peters, Revnew, Kappenman & Anderson, P.A..
On November 14, 2016, the USCIS (U.S. Citizenship and Immigration Services) published a revised Form I-9 (Employment Eligibility Verification). The new form, dated 11/14/2016 must be used effective January 22, 2017. The old form, dated 03/08/2013 will no longer be acceptable. The new form is easier to compete electronically, add prompts, and also provides places for notes and multiple preparers and translators, as well as a supplemental page for the preparer/translator. The form can be found at: https://www.uscis.gov/i-9.
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