DOL Releases Final Overtime Rule
By Philip Dickey, MPH, PHR, SHRM-CP | May 20, 2016
The U.S. Department of Labor (DOL) issued the long-anticipated final overtime rule on May 18 and included an exempt employee threshold of $47,476—less than the proposed rule’s $50,440 but slightly more than double the old threshold of $23,660. It is a change that will make millions of exempt employees eligible for overtime pay later this year. The impact of the increase will escalate in coming years; the rule included a hike every three years in the minimum salary for exempt employees. Employers must comply with the new rule by December 1, 2016—a much longer time to comply than the minimum 60 days required of final rules.
With the increase, employers every three years will have to monitor the minimum acceptable salary level for exempt classification, identify employees impacted by a new minimum salary requirement, and assess whether to reclassify the affected employees or restructure jobs. Based on current projections of the three-year increase, the salary threshold is expected to rise to more than $51,000 with its first update on January 1, 2020.
Depending on the timing of the increases, employers may need to restructure their review and compensation cycle to better align with the regulatory scheme and allow managers to understand the required salary amounts at the same time they are determining merit raises and bonuses. In addition, employers may look three years out and determine whether the continued salary increases are sustainable or whether the position should just be reclassified at the time of the review.
Duties Test & Highly Compensated Employee
The final rule did not include a change to the duties test. It did raise the salary threshold level for the highly compensated employee exemption from $100,000 to $134,004, or the 90th percentile of full-time salaried workers nationally. Like the standard salary level, the highly compensated employee salary level will increase every three years beginning January 1, 2020.
The rule can also indirectly affect employee benefits. Some exempt employees enjoy additional benefits or perks that they may lose when reclassified as nonexempt To the extent that employees are reclassified, their entitlement to benefits could change.
Steps to take to comply with the new rule:
- Quickly assess the costs of reclassification vs. salary increases. Determine if it’s feasible to raise salaries to retain the exempt statuses of those on the cusp of the new salary level. Reclassify those who fall under the new threshold and determine their pay structure—salaried plus half time, hourly plus time and a half, bonus and commission changes. Nondiscretionary bonuses and commissions are included in the calculation of the exempt salary threshold up to 10 percent of the required salary level, as long as employers pay those amounts on a quarterly or more frequent basis.
- Implement and communicate the compliant approach to affected employees and managers. Determine whether communications about the rule will be in one-on-one meetings, small group meetings, large group meetings, memos or a combination of these approaches.
- Train supervisors on managing nonexempt employees.
- Check whether state wage notification laws require a pay period or 30 days’ notice of any change in pay and send out notices about the changes, if required.
- Determine effects on benefits as the result of reclassification.
Managers must understand how to:
- Train nonexempt employees to track and report time.
- Avoid encouraging work after hours.
- Manage overtime.
- Watch employee morale in the event of reclassification. Reclassified employees may view the change as a demotion. Communications with employees should emphasize that reclassification was a result of changes in the regulations. Employers should note that any reclassification is not a reflection of the value of an employee’s contributions to the success of the organization and that the company will work with employees impacted by reclassification to make a successful and positive transition.
Under the Obama administration, Secretary of Labor Thomas Perez and Wage and Hour Division Administrator David Weil have been committed to stepped-up enforcement; and the new rule focuses heavily on compliance.