July 6, 2016 blog UPDATE:
On May 18, 2016, when the White House released the Final Rule, we published U.S. Department of Labor Unveils New Overtime Law. To make sure you are ready to adapt to the regulations, please see this story for details about the law that takes effect December 1, 2016.
(We initially published this article, “DOL proposes OT exemption changes; Sage HRMS can help you prepare” on July 8, 2015.)
You may have already heard that the Department of Labor (DOL) is considering increasing the minimum salary for employees to be exempt from overtime pay. Below, we share the details of the proposed regulation, as presented by the American Payroll Association (APA), with additional details gleaned from the official DOL proposal.
What is the proposed action?
80 FR 38515 – Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees
This Notice of Proposed Rulemaking (NPRM) was published on July 6, 2015 in the Federal Register by the United States Department of Labor, Wage and Hour Division (WHD).
According to the APA, on June 30, 2015, “The United States Department of Labor (DOL) released a proposal to update regulations on ‘white collar’ exemptions.” Affected regulations are those that “(govern) which executive, administrative, and professional employees (white collar workers) are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections. The DOL last updated these regulations in 2004.”
What are the conditions of the OT exemption changes proposal?
Changes in salary threshold for exempt employees:
PROPOSED (2016): $970/week ($50,440/year)
Current (set in 2004): $455/week ($23,660/year)
- Update the salary and compensation levels for workers classified as “white collar” workers to qualify for exempt status. This will ensure that the Fair Labor Standards Act (FLSA) intended overtime protections are fully implemented.
- Simplify the identification of non-exempt employees. This will make the EAP exemptions easier to understand.
- Establish a mechanism to automatically update salary and compensation levels going forward. This will prevent the levels from becoming outdated as years pass between updates.
More proposed objectives to know:
- Set the standard salary level for full-time salaried workers to the 40th percentile of weekly earnings.
- Increase the total annual compensation requirement to exempt highly compensated employees (HCEs). This number would rise from $100,000 to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.
The DOL is currently soliciting input on these topics:
- Suggestions for additional occupation examples
- Comments on the current duties test requirements
- Comments on the possibility of including non-discretionary bonuses to satisfy a portion of the standard salary requirement
Sage HRMS has features that can help you determine the potential impact of this ruling on your business. One simple action we recommend taking is to produce a budget salary analysis using Sage HRMS with Sage HR. Please contact MicroAccounting if you have questions about this process.