On May 18, the Department of Labor announced a change in the rules regarding the requirement to pay overtime to employees who are salaried. This announcement does not change the rules for employees who are paid by the hour. The new rules go into effect on December 1, 2016.
For an employer not to have to pay an employee overtime for working over 40 hours in a week, the employee must meet 2 tests. These tests are as follows:
- Minimum Salary Test. Under the old rule an employee had to be paid at least $455 per week ($23,660 per year) to be considered exempt. The amount is now $913 per week ($47,476 per year). However, now up to 10% of the qualifying salary can come from bonuses, incentive payments and commissions (as long as they are paid at least quarterly). Previously these payments did not qualify in determining whether an employee was exempt.
- Standard Duties Tests. These rules have not changed.
If an employee does not meet both tests, they will have to be paid at least time and one-half for all hours worked over 40 hours in a week.
The definition of a Highly Compensated Employee was also increased to an individual earning $134,004. It had been $100,000. The same rules regarding bonuses, incentive payments and commission apply as above. Highly Compensated Employees are not subject to the standard duties test, but do need to have some components of the standard duties as an at-least occasional part of their job description.
The effects of this, including how businesses will track time for their salaried employees, is going to lead to many questions. We remain available to answer them, and will continue to provide guidance both individually and through client alerts, to our business clients. Please feel free to contact either Bruce or Justin via phone or email.