Last year, the US Department of Labor published a proposed rule expanding overtime entitlement for millions of workers. The Department received a significant number of comments since then, both in favor of and opposed to the proposed rule, and today the Obama administration announced a final version of the overtime exemption rule.
The rule, which will go into effect December 1, 2016, will expand the class of people who will be eligible for overtime compensation. The Fair Labor Standards Act currently requires employers to pay employees one and one half times their regular rate for all hours worked in excess of 40 hours in a workweek. Some employees, however, are exempt from this requirement if they meet certain criteria. Specifically, in order to be exempt the employee must perform certain types of duties and must be paid a certain minimum salary. It is that minimum salary threshold that is altered by the new rule.
Under the current rule, in place since 2004, that minimum threshold has been $455 per week, or $23,660, per year. The new rule would double that, to $47,476, per year.
If an employer has any employee that currently is exempt, but who is paid less than $47,476, then starting December 1, the employer has several options if he or she wishes to maintain the exemption and avoid paying the overtime premium. For example, the employer can increase the employee’s salary to some amount above that threshold, to maintain the exemption. Of course, that is most feasible for those exempt employees who already are paid some amount close to that threshold.
What is more likely, however, is that many employers will reduce the number of hours worked, to limit the likelihood of overtime compensation. Alternatively, some employers may reduce the base pay for some employees, so that the same total compensation is paid after accounting for the new premium pay.
The new rule requires perhaps the most significant change in overtime rules in more than a decade, and employers now have about six months to plan and prepare.