Despite an outpouring of negative commentary from the business community and a congressional attempt to block enactment (more on that below), the Department of Labor’s new overtime rule has arrived. The rule is a whopping 508 pages long, but here are the basics gleaned from the summaries by Audrey Mross, who leads the Labor and Employment Section at Dallas’ Munck Wilson Mandala:
- The effective date is Dec. 1, 2016, so you’ve got some time to get your house in order.
- The minimum salary to preserve most exemptions (in addition to meeting the proper duties test) will jump from $23,660 to $47,476 per year (lower than expected, based on the proposed regulations).
- The minimum salary to preserve the exemption for highly compensated workers will rise from $100,000 to $134,004 per year, higher than expected.
- The minimum salary will reset every three years, starting Jan. 1, 2020. Each new minimum will be announced 150 days in advance (Aug. 1, 2019 for the January 2020 increase).
- Those minimum salary levels are tied to a percentage of the earnings of full-time salaried workers in the lowest-paid Census region, the South. The non-Highly Compensated Minimum salary is pegged at the 40 percent mark when looking at the weekly earnings of all full-time, salaried workers in the South. The Highly Compensated Employee rate is pegged at 90 percent.
- Up to 10 percent of the salary minimum for non-HCE workers can be met via payment of non-discretionary bonuses, commissions or incentive pay so long as the payments are made quarterly or more frequently.
- No changes were made to any of the duties tests.
The administration purposefully pushed the new regulation out now to try to avoid nullification via the Congressional Review Act after the upcoming elections. The Protecting Workplace Advancement and Opportunity Act, which attempts to block the rule and requires further economic impact study, has only 36 sponsors in the Senate and 155 in the House, so not a lot of traction there yet. Today’s announcement means it’s time for businesses to review those job classifications and compensation levels and make some decisions. For example, do you increase the minimum salary, where needed, to preserve the exemption? Or do you concede nonexempt status and manage the overtime liability by clamping down on hours worked? Policies and procedures will need updating, and plan on educating newly nonexempt workers and their managers on unfamiliar topics such as proper record-keeping, compensability of travel time and more.