Final Rule Expands Who is Eligible for Overtime

After much talk and speculation, the Department of Labor has issued its Final Rule updating overtime regulations under the federal Fair Labor Standards Act and significantly affecting the executive, administrative and professional exemptions.  The Rule goes into effect on December 1, 2016.

Here are changes that Ohio employers and employees alike should know about:

1.  The minimum salary level for the executive, administrative and professional exemptions has been raised to $913.00 per week, which is an annual salary of $47,476.00. (Slightly more than double the current minimum salary level).

2.  The minimum salary level will automatically increase every three years–starting January 1, 2020–based on the 40th percentile of salaries of full-time employees in the lowest wage census region.

3.  The annual minimum salary level for “highly compensated employees” has been raised to $134,004.  The three-year automatic increase will be based on the 90th percentile of salaries for full-time salaried employees nationwide.

4.  When calculating employees’ salaries, employers may include non-discretionary bonuses and other incentive payments, such as commissions, that are paid at least quarterly to account for up to 10% of the new minimum salary levels.

The effects of this substantial increase in the minimum salary levels will include:

1.  Starting December 1, 2016, employees classified as executive, administrative, professional or highly compensated and are receiving less than the increased minimum salary levels can expect either a raise (so that they remain exempt from overtime pay) or to begin receiving overtime for time worked over 40 hours in a workweek because they are no longer exempt.

2.  Employers will carefully review employees classified as exempt because of their executive, administrative, professional or highly compensated status to make sure that they meet the “duties test” for their particular exemption and then increase salaries to meet the  new minimum level or begin to pay overtime to those formerly exempt employees whose salaries fall below the minimum salary level.

3.  Employers and employees will undoubtedly face a wide array of changes in the workplace, including alternate methods for calculating and paying wages (for example: agreements for fixed pay for a fixed number of hours worked in a workweek), record keeping procedures for employees who previously did not have to track their time, more strictly enforced rules requiring prior authorization for working overtime, larger paychecks,  possible changes in benefits for formerly exempt employees, possible job reductions for budgetary reasons and more scrutiny as to whether an exempt employee truly meets the “duties test.”

Wisely, many employers have already begun taking steps to ensure compliance when the Fair Labor Standards Act’s new minimum salary levels take effect on December 1, 2016.