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New Overtime Regulations Published: $47,476 is New Base Salary Level

By: Melissa Calhoon Jones

After a long delay, the federal Department of Labor published its new overtime regulations changing the base salary requirements for exempt executive, administrative, and professional (“white collar”) employees on May 17, 2016.  The regulations do not change the job duties tests used for determining whether white collar employees are functioning at an exempt level.  To qualify as exempt after the new regulations take effect on December 1, 2016, white collar employees will still have to satisfy a job duties test, be paid no less than the new salary level, and be paid on a salary basis. 

The new mandatory base salary level is $913 per week, or $47,476 per year.  For highly compensated white collar workers, who may be classified as exempt if they perform at least one exempt job responsibility and are paid a required amount, the new total annual compensation requirement is $134,004 per year (“HCE salary level”).  The new salary levels will take effect December 1, 2016. 

In a change from current regulations, under which only base pay may be used to determine whether salary thresholds are met, the new regulations provide that up to 10% of the base salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly.  Highly compensated employees must be paid the full base salary on a weekly basis, although nondiscretionary bonuses and incentive payments (including commissions) may count toward the total annual compensation requirement for HCE salary level.

The salary levels will adjust every three years, starting January 1, 2020, to maintain the base salary level at the 40th percentile of full-time, salaried workers in the lowest-wage Census region (currently the south), and the HCE salary level at the 90th percentile of full-time, salaried workers nationally.  According to the Department of Labor, it will publish all updated rates in the Federal Register at least 150 days before their effective date, and also post them on the Wage and Hour Division’s website.

Employers are encouraged to start preparing for these changes by:

  • Determining whether any of their exempt employees are currently paid less than $47,476 (or, for highly compensated employees, less than $134,004).
  • For those employees who fall below the salary threshold, doing a cost analysis based on average hours worked to determine whether it is more cost effective to increase the employee’s compensation to maintain the exemption or pay overtime when the regulations take effect.Preparing to either increase compensation or reclassify employees whose compensation cannot be adjusted once the regulations take effect.

Reclassification to non-exempt will bring additional challenges as employers implement timekeeping and overtime management requirements (such as requiring reclassified employees to punch a time clock, not work through lunch, or to obtain authorization before working overtime) for employees who were previously exempt and may not be used to such restrictions.  Consequently, an important part of preparing for these changes will be training newly non-exempt employees -- and their supervisors -- about company expectations in these areas.  Employers may also find themselves needing to adjust staffing levels, and to prevent or closely monitor off hours work, to manage overtime.

We can anticipate that governmental audits will increase after the regulations take effect to ensure proper implementation, and that plaintiffs’ lawyers stand at the ready to file claims for unpaid overtime for employees who are paid less than the minimum thresholds but are still classified as exempt after December 1.  In anticipation of that, employers are encouraged to take this opportunity to review the exempt classification of all of their employees to determine whether they are properly classified under existing job duties tests (even if they are paid more than the new minimum salary level) or if they should be reclassified as non-exempt. 

Melissa Calhoon Jones, chair of the Labor and Employment Group, counsels companies on employment, labor, and immigration issues.  For more information on these new regulations and other employment concerns, please contact Ms. Jones at mjones@tyidngslaw.com or 410.752.9765.

 

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