New OT Rules Published!

The long wait is over! Today, May 18, the Department of Labor’s overtime rules changes have been published.

First, the good news

There had been some speculation the DOL might make changes to the “duties test.” However, they chose to leave these criteria as they are, without imposing any additional restrictions or conditions on eligibility for exemption. Whew!

Background: as you probably recall, in order to be eligible for the “white collar” overtime exemption, employees must be paid a salary that passes a specified threshold. Once their salary is high enough to meet the initial threshold, a “duties test” is applied to determine if their job duties qualify them for the white collar exemption. The qualifications in the duties test will remain unchanged for now.

Also, the original changes proposed a salary threshold of over $50,440 a year. In the final published rules, this has been decreased, to $47,476, or $913 per week. Employees who are not paid on a salary basis, or who make less than this amount, will be eligible for overtime. Employees who make a salary of more than $913 per week may be exempt from overtime, depending on the outcome of the duties test.

Other key provisions

For highly-compensated employees, an abbreviated/minimal duties test applies. (This abbreviated duties test means it’s almost certain that employees paid at this level will be considered exempt from overtime.) The threshold for the use of this test is going to be updated from its current level of $100,000 to a new threshold of $134,004.

Employers will now be able to include certain payments, such as nondiscretionary bonuses, incentive payments and commissions to satisfy up to 10% of the salary threshold requirement.

And finally, the rules now provide for an automatic review and update every three years to maintain the salary threshold at a level “equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.” The highly-compensated employee threshold will be similarly updated to maintain a level equal to the 90th percentile of annual earnings of full-time salaried workers nationally. The first update will take effect January 1, 2020, and will be published with at least 150 days’ notice.

There’s still time to prepare, but not a lot of time

The rules are scheduled to take effect December 1, 2016. This gives organizations seven months to decide how they’re going to handle these changes.

In short, if you have employees who are currently making less than the updated threshold and who are not receiving overtime, you have two options:

  • Pay time-and-a-half overtime for any hours over 40 they work in a workweek.
  • Raise their salary to be above the new threshold.

For workers whose salary is close to the new threshold, the least expensive alternative is probably to simply raise their salary to meet the new standard. For those who are further down the pay scale, such a raise may not be practical (or possible). For those workers, you will have to begin paying them overtime. Fortunately, there are tactics you can use to control your labor costs, including:

  • Hiring additional people (part time or full time) or eliminating/reassigning tasks so everyone’s work can get done in 40 hours a week, effectively eliminating the need for time-and-a-half overtime.
  • Reducing base compensation levels to account for the additional pay workers will be receiving for overtime.
  • Depending on your local jurisdiction’s laws and your work schedules, there may be special payroll calculation rules (such as the “fluctuating work week”) that could be used to reduce your overtime liability.

Which of these (if any) you employ will depend on many factors. You’ll need to consider the effects on employee morale and productivity, the presence of any collective bargaining agreements or employment contracts, as well as what might be standard/expected in your industry, among other things. And, of course, be sure to consult with your employment law attorney before you make any changes.

Acroprint can help

You might want to read my earlier newsletter article for a more detailed discussion of your options to limit the new rules’ impact on your labor costs.

The one thing you don’t want to do is wait until November to decide how you’re going to deal with the new rules. If you haven’t started your preparations yet, the time is now. If you have employees who will become eligible for overtime, and you’re not already recording their work hours, start! Unless you know for sure how many overtime hours (if any) they’re working now, it’s going to be difficult (or impossible) to plan an effective strategy.

Fortunately, Acroprint offers one of the widest selections of time tracking products in the industry. You’re sure to find one that meets your business needs and fits your work environment. Visit our web store to view the complete selection and make a purchase, or call 800.334.7190 to speak with one of our trained Customer Care representatives. They’ll be happy to help you select the right solution for you!

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