On May 17, the Department of Labor released the Final Rule regarding eligibility for exemption from overtime pay. This new rule becomes effective December 1, 2016, and it is expected to have the effect of creating over four million new non-exempt employees.
This rule changes the threshold for wages for exempt administrative employees from $23,660 per year, a number set in 2004, to $47,476. The rule originally eliminated 62% of administrative employees from exemption from overtime, but because it was not changed for many years, that number had decreased to 7%. It is estimated that the new number will result in reducing the number of workers who remain exempt to 35%.
If, for example, Bob is the manager of the local Krispy Kreme making $40,000 per year, he has been considered exempt from overtime. Even if he works 60 hours a week, he receives no additional pay. When the rule becomes effective, Bob’s wages will be converted to an hourly number by dividing his weekly salary ($769.23) by 40 ($19.23), and he will be entitled to time and one half ($28.85) for all of the hours he works over 40.
Since, in my example, that number could amount to an additional $576.92 a week, or up to an additional $30,000 a year, Krispy Kreme could increase Bob’s salary to $47,500 in order to comply with the wage threshold or instruct Bob not to work more than 40 hours and hire another employee to work the 20 additional hours.
Also, Bob could be scheduled for a nondiscretionary bonus or incentive payment, since up to 10% can be added to salary in determining compliance with the threshold number.
To avoid future instance of huge increases, the threshold number will be adjusted every three years with the first increase scheduled for January 2020.
Claudia Allen advises on employment law and employee benefits for businesses and can be reached at email@example.com. Her direct line is 513-629-9462.