Note: overtime reform has been delayed indefinitely. These rules did not become effective as planned and likely will not without undergoing major revisions. We will keep clients updated of any progress.
Reforms to overtime pay are here!
The rules that make employees eligible to earn overtime pay have changed, and it will mean significant changes in the workplace.
Here is what you can expect:
- New rules are effective December 1, 2016. Companies will have time between now and December 1 to change pay procedures. Employers should start making changes now in order to be fully compliant by the December 1 effective date.
- The salary threshold is doubled. The previous minimum salary at which overtime pay could be exempted was $455 per week. New rules raise that minimum salary to $913 per week.
- This will mean a loss in overtime-exempt status for more than 4 million workers, making them eligible to earn overtime pay at a rate of 1.5 times their regular rate of pay when working more than 40 hours in a workweek.
- In order to even consider exempting an employee from overtime pay, he or she will need to earn at least $47,476 per year.
- This salary threshold increase raises the base salary amount above the poverty level for a family of four and is the first increase in over a decade. The $23,660 annual threshold was set in 2004 and hasn't raised since then.
- To prevent another gap from inflation that potentially puts families below the poverty line and still unable to earn overtime pay, there will be automatic increases to the salary threshold every three years, beginning January 1, 2020. Increases will be determined by the 40th percentile of earnings for full-time salaried workers in the lowest wage region.
- The minimum pay for workers under the highly compensated employees' exemption is increased to $134,004, in addition to the minimal duties test.
- An employee's pay alone, of course, is not the only determining factor in overtime exemptions. The duties test has not changed. Employers will also need to examine the employees primary duties and whether they fall into one of the DOL-approved exempt categories.
Nextep has been advising our clients to prepare for the changes for several months and is prepared to help further in the coming months with changes and self-audits to ensure compliance with the new rules. As a first step, contact your HR Consultant to discuss the implications for your workforce and a specific action plan.
We recommend that employers being by assessing their current rates of pay to see who now falls in the nonexempt category, as well as examine job descriptions to make sure the remaining overtime-exempt employees truly do fall into the current DOL-approved categories (misclassification is deceptively easy).
Please contact your Nextep HR Consultant to discuss how your organization will prepare for these changes.