The Department of Labor (DOL) has just announced that effective Dec. 1. 2016, the salary threshold for exempt employment will be $913.00 per week ($47,476 annually). That’s just a tiny bit more than double the current threshold.
The DOL estimates that this change will entitle approximately 35% of all workers currently salaried to become eligible for overtime. They further speculate that the change will put an additional $12 billion in workers’ pockets over the next decade.
Some Surprises in the Final Rule
The final version of this rule tossed us a few last-second curve balls to keep us on our toes. For example:
– We reported here on May 2, that the threshold was anticipated to be $47,000 a year, a drop of about $4,000 from the original proposal. The final amount of $47,476 was never indicated in any of the DOL’s information leading up to the final rule.
– The salary will be “automatically” increased every three years, a change from the annual updating that has been under consideration. The intent of the automatic increase is to insure that the threshold stays at the 40th percentile of full-time salaries in the lowest income region of the country.
– The “highly compensated employee” threshold will increase from $100,000 to $134,004 annually. This exemption applies if an employee earns this amount and meets any one of the factors under the so-called “White Collar Exemptions” (executive, administrative or professional).
– According to the DOL press release, the new rules “respond to employers’ concerns by making no changes to the “duties test.” Only the salary threshold for exemption is changing.
– Also as previously reported here, non-discretionary bonuses and commissions may be counted for up to 10% of the threshold. Therefore, if an employee earns $850.00 in a week but also receives a commission of $65.00 (or perhaps a perfect attendance bonus, a sales quota bonus, or some other similar payment of that amount), the exemption remains intact. In a Q&A issued yesterday, the DOL stated that such bonus or commission payments must be made on a quarterly basis or more frequently, but if at the time of the payments they still do not satisfy the threshold, the employer may make a “catch-up” payment to preserve the exemption.
Interestingly, the DOL also issued three technical guidance documents designed to help public employers, non-profit employers, and institutions of higher education address the changes that may be required as a result of the new overtime threshold.
Bottom Line
We have anticipated this change (more or less) for about a year so its arrival should be no surprise. It is a surprise, however, that the DOL has given us so much more time to implement the necessary changes – more than five months instead of the 60 days that we had assumed.
With the amount of breathing room we still have, there is no excuse for not being ready for these changes by December 1. Still, it is going to take some time to figure all of this out. Should employees close to the minimum requirement be given raises so that they exceed the threshold? Should newly non-exempt workers be paid hourly or remain on a salary? How do we make all these changes but still keep close to our labor budget?
Start working those calculators, and be sure to refer to our previous article entitled How to Get Ready for Overtime Exemption Changes for some helpful ideas on re-working employee wage and salary rates to meet the new salary requirement.