Friday, May 20, 2016

New Overtime Rule and You

New overtime rule could very likely affect your job directly or even indirectly

The United States Department of Labor has released the final rule on changes being made to overtime pay. This rule will be effective December 1, 2016.

Previous Rule:

If you were considered an exempt employee and got paid an annual salary of at least $23,660, you were not eligible for overtime pay if you worked more than 40 hours in a work week.

New Rule:

If you are considered an exempt employee and get paid an annual salary below $47,476 and above $23,660, you could now be eligible for overtime pay if you work more than 40 hours in a work week.

Options for the Employer:

Employers could respond to this new overtime rule in a variety of ways:
  1. Employers could begin paying overtime pay to the employees who now fit the new criteria. This could lead to a raise in cost of the organizations products/services.
  2. Employers could raise salaried employees pay to the new minimum of $47,476. This could lead to a raise in cost of the organizations products/services.
  3. Employers could reclassify the exempt salaried positions to full-time hourly positions. This would limit the ability of employee being able to work additional hours to accomplish their assigned duties.
  4. Employers could eliminate the affected positions that would otherwise be considered eligible for overtime pay. This would require the employer to redistribute those job duties to other employees within the organization.
  5. Employers could eliminate the affected positions and replace each of those positions with two part-time employee positions. This would also enable the organization to save on paying full-time benefits.
In order for a worker to be exempt from overtime, they must meet the criteria. For example, performing "executive" duties means supervising the work of two or more employees and "administrative" duties requires the exercise of discretion and independent judgment. For more information, please review the Department of Labors fact sheet on overtime exemption.

If you feel that you work in a position that could fall under these new overtime rules, please consult your Human Resource department or immediate supervisor. As always, be sure to review your state specific overtime rules.

These new overtime rules will have effect an estimated 4.5 million workers and have a residual effect on their co-workers and products/services.

Here is the new overtime rule as stated by the Department of Labor:
Key Provisions of the Final Rule
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
1.    Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2.    Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
3.    Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

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