Final ‘White Collar’ Overtime Rule

 

As expected, the United States Department of Labor published its final regulations amending the so-called "white collar exemptions" on May 18. 

 

 

• Increase the minimum salary level to meet the white collar exemption from $455 per week (approximately $23,660 annually) to $913 per week (approximately $47,476 annually).

 

• Allow up to 10 percent of the salary threshold [i.e. $4747] to be met by non-discretionary bonuses, incentive pay or commissions, if they are made on a quarterly or more frequent basis.

 

• Apply to the Executive, Administrative and Professional exemptions.

Increase the total annual compensation level for Highly Compensated Employees to maintain exempt status from $100,000 to $134,004.

 

• Install an automatic update procedure, which will update the salary threshold every three (3) years (beginning January 1, 2020). This update will raise the minimum salaries required to meet the white collar exemptions to the 40th percentile of full-time salaried workers nationally and the Highly Compensated Employees to the 90th percentile of full-time salaried workers nationally.

 

• Make no changes to the current "duties" tests.

 

• Go into effect December 1, 2016.

 

The DOL’s summary of the final regulations can be found at:   https://www.dol.gov/sites/overtime

 

The practical effect of these regulations is that if the salary threshold is not met, the "duties test" never comes into consideration.  In other words, if the position does not pay a salary of at least $47,476 annually, the position will be deemed non-exempt and thus subject to overtime for all work performed beyond 40 hours in the work week.    

 

What options do employers have?  Several options are obvious, but may not necessarily be palatable to the employer’s business operations:  #1. Increase the salary to meet the new threshold and maintain exempt status;  #2. Accept non-exempt status by keeping the compensation the same and not allow  any work beyond 40 hours in the workweek or pay overtime when work exceeds 40 hours; #3. Create specific salaried non-exempt positions which may offer advantages concerning overtime pay but unfortunately may be difficult to administer; or #4.  Revise the company business model by reorganizing the entire workforce  to maintain reasonable labor costs  by reducing the number of exempt positions while increasing the number of non-exempt positions without allowing overtime.  

 

Certain industries will be especially hard hit, such as non-profits, healthcare, hospitality, higher education and small businesses.

 

Congressional Republicans have introduced legislation aimed at derailing the implementation of the final regulations. However, the White House’s professed commitment to the new regulations, suggests that this legislative action has no realistic chance of halting the regulations.

 

Regardless of the option chosen, the only good news for employers would appear to be that they  have about five months remaining to complete their preparations for complying with these  new regulations. Time is indeed a-wastin’.