Overtime Overview: New Rules Take Effect this December

by Ginny McMinn, Founder and Owner, McMinn HR

clock-overtimeAfter more than a decade without change, the U.S. Department of Labor has introduced new regulations governing exemptions from overtime pay. The regulations apply to the enforcement of the Fair Labor Standards Act. The changes are effective December 1, 2016, for most covered organizations.

Employees in exempt jobs are not eligible for overtime pay. Non-exempt positions require the payment of overtime at 1.5 times the regular pay rate for hours worked beyond 40 in a work week.

Three factors determine whether a job is exempt:

1. Is the employee paid on a salaried basis?  Salaried individuals regularly receive the same amount of pay without computation of the actual hours worked. This is not changed by the new regulations.

2. Is the employee paid enough?  Currently, this pay standard is $455 per week. Beginning December 1, 2016, the standard will be $913 per week ($47,476 per year) for exemption as Executive, Administrative or Professional jobs. Highly Compensated Individuals must earn $134,004 per year to meet the new regulation standard, with at least $913 of this amount payable weekly. This is the biggest change in the new regulations.

Those in Outside Sales (another exempt job category), teachers and practicing doctors and lawyers are not required to meet a minimum salary requirement for exempt status. This is also unchanged.

3. Do the job responsibilities meet the Duties Test for an established exemption?  Regulations spell out the duties required in order for a position to be considered exempt as Executive, Administrative, Professional or Highly Compensated Individual jobs. The Duties Tests are also unchanged.

Two additional changes:  Organizations may now include nondiscretionary bonus payouts, incentives and commissions toward up to 10 percent of the new required salary level. And the required salary level will be reviewed every three years for potential change, instead of waiting for DOL consideration.

Covered employers should act in order to be ready for the December 1, 2016, effective date. Failure to comply with the new regulations can result in penalties and fines, including payment of back overtime pay, punitive damages (double the amount of back pay) and multi-year back pay accumulation.

Additional information is available through the Alliance of Arizona Nonprofits, www.dol.gov/whd (search for “Overtime Final Rule”), your employment attorney or HR consultant.

This article is not intended as legal advice. While most organizations are covered under the regulation, either because of revenue numbers of $500,000+ annually or employees whose duties involve interstate commerce, we do recommend that organizations check with their legal advisors and/or review the regulations on the Department of Labor’s official website.

Ginny McMinn is the Founder and Owner of McMinn HR

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