The new federal overtime rule, which takes effect Dec. 1, 2016, includes the following changes:
Salary threshold. The new rule will increase the salary threshold for white-collar exemptions to $47,476 from $23,660. It will also increase the threshold for the highly compensated employee (HCE) exemption to $134,004 from $100,000. All employees earning below $47,476 are eligible for overtime. All HCEs paid more than $134,004 are exempt. Between those two thresholds, the duties test determines whether an employee is exempt.
Effective date. Dec. 1. However, employers should ensure that they are in compliance by the pay period that includes Dec. 1, which could be several days before, according to attorney Michael J. Eastman in Washington, D.C., who advocates on behalf of the Society for Human Resource Management.
Automatic updates. The thresholds will be updated every three years. In January 2020, the $47,476 threshold is expected to increase to more than $51,000 to remain equal to the salary of the 40th percentile of full-time salaried workers in the U.S. Census region with the lowest income (currently the South.)
Incentives and bonuses. In calculating whether an employee meets the threshold, employers may include nondiscretionary bonuses, incentive pay and commissions of up to 10 percent of the threshold, or $4,747 a year. So, an employee with a base salary of $42,729 plus $4,747 in incentives would be considered exempt.
Catch-up payments. If incentive pay doesn’t bring the employee to the annualized $47,476 threshold for that quarter, an employer can make quarterly “catch-up” payments.
Duties test. There is no change in the duties test. Employees who perform executive, administrative and professional duties are exempt from overtime requirements. So are certain computer professionals. Doctors, lawyers and teachers aren’t subject to the salary tests.
Source: U.S. Department of Labor.
