Overtime pay rules

We are roughly 2 months away from the Department of Labor’s (DOL) December 1 start date of the revised overtime pay rules. While some employers have already reviewed and addressed the changes they need to make, there are many employers who continue to have questions. Do bonuses count? If so, how much of a bonus can I give? For the employees who are salaried and no longer meet the minimum salary level, how do I account for their hours going forward? Am I required to change my employees from salary to hourly? And there are many more questions employers have.

In a recent development that adds a twist to the December 1 effective date, last week 21 states filed a lawsuit in the U.S. District Court for the Eastern District of Texas to stop the DOL’s overtime pay changes. At this point, it’s uncertain if the Court will issue a ruling before December 1, but employers are advised to continue planning as if there is no lawsuit.

For some background on the overtime rules, prior to DOL changes, if an employee met certain tests, that employee would be exempt from overtime. Those three tests are the salary-basis, salary-level, and standard-duties tests. The tests themselves did not change, but the amount of salary in the salary-level test did change to be $47,476 per year ($913 per week or for exempt computer employees $27.63 per hour).

To help employers navigate their way through the overtime pay changes, the DOL has issued several questions & answers on their website and we’ve provided links to those pages below. The following few paragraphs discuss some additional questions we’ve received thus far.

While employers have heard the annual salary amount is now $47,476, the DOL will consider compliance met by using the $913 per week rate, not the annual rate. If an employee starts or leaves employment in the middle of a week, the employer will pay a pro-rata portion of the employee’s weekly rate for the days the employee worked. As long as the $913 per week is met, the DOL will consider the pro-rata portion as meeting the minimum salary level.

An employer is allowed to use non-discretionary bonuses and incentive payments in order to reach the annual salary level, however those bonuses and incentive payments cannot exceed 10% ($4,747) of the annual salary level and they must be paid on a quarterly basis at a minimum. But what if the quarterly bonus earned isn’t large enough to satisfy the pay test for that quarter? The employer is allowed to make a “catch-up” payment in the payroll period immediately following the end of the quarter. The quarter time-period isn’t necessarily a calendar quarter either; the employer is allowed to pick when they would like their quarters to begin.

For employees that are salaried, but do not meet the $913 per week, employers are advised to have employees account for their time on a regular basis going forward, if they weren’t already. The employer may say that a salaried employee is never going to work more than 40 hours a week, but beginning December 1, that won’t cut it with DOL. The employee may not need to punch a time clock, but they do need to report how many hours were worked each day to ensure they were not working any overtime.

Additionally, the employer will not be required to make that salaried, now non-exempt, employee hourly. The employee can still be considered a salaried individual, but as soon as the employee works more than 40 hours in a week, the employee does essentially become hourly. To figure the overtime pay, the salary is calculated on a per-hour basis and that per-hour basis is used to figure the additional pay on the overtime hours.

Links to DOL Q&A:

https://www.dol.gov/whd/overtime/final2016/webinarfaq.htm

https://www.dol.gov/whd/overtime/final2016/webinarfaq_np.htm – This link is for non-profits

We understand there are many questions employers are facing and will continue to face. If you have any questions, please contact us and/or take a look at the Department of Labor’s website.