DOL Overtime Rule Changes

Published:

Significant changes to the overtime pay regulation have been announced. Is your company prepared?

On May 18, 2016, the U.S. Department of Labor announced the publication of a final rule amending the white collar overtime exemptions to the Fair Labor Standards Act. The prior federal structure was that employees, earning less than $23,660 per year, were automatically required to be paid an overtime premium that was 50% of the employee’s standard hourly wage for every hour beyond 40 in a workweek. The new regulation will expand the number of workers eligible for overtime pay by raising this threshold to $47,476, which is the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). Using this same methodology, there will be automatic updates to this threshold every three years, beginning January 1, 2020. Additionally, the salary basis test was changed to permit employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level. According to the Economic Policy Institute, approximately 12.5 million workers may benefit directly from the modifications.

Time will tell how much the revisions will truly benefit workers across the country as employers have a variety of options at their disposal to mitigate the impact:

  • Employers could lower base compensation in order to offset the impact of the overtime changes.
  • Employers could give employees who are close to the $47,476 compensation level a raise in order to exclude them from being eligible for overtime pay.
  • Employers could reduce employee weekly hours to minimize overtime expense.
  • Employers could shift away from bonuses or profit-sharing compensation methods.

The final rule will be published in the Federal Register on May 23, 2016, and it will take effect December 1, 2016. This makes it vital for businesses to be proactive in their assessment of their current staffing in regards to compensation and work hours.

If your company needs any assistance navigating the above regulation revisions, please give us a call, and we would be more than happy to work with you to achieve your goals.