Under the Fair Labor Standards Act’s “Final Rule” (or “Overtime Rule”), the salary threshold required for the executive, administrative and professional (“white collar”) exemption from overtime pay to apply more than doubles from the current threshold of $23,660 per year to the new threshold of $47,476 per year. Generally, employees whose salaries are under the $47,476 and who work more than 40 hours per week must be paid overtime at time-and-a-half.
The effective date of the Final Rule is December 1, 2016. The salary threshold will update every three years, beginning January 1, 2020.
The Final Rule does not change the “duties test” to determine exemption from overtime pay for white collar salaried employees who earn more than the $47,476 salary threshold. An example under each category is:
- Executive: manager of a department of the company, including directing at least two other full-time employees
- Administrative: an executive assistant to a business owner who exercises discretion and independent judgment with respect to matters of significance
- Professional: employee performing work requiring advanced knowledge in a professional field such as law, medicine, accounting, engineering, architecture, etc.
Some options for employers who are impacted by this change are as follows:
- Pay overtime. Employers can continue to pay employees a salary below the $47,476 threshold and pay overtime at time-and-a-half for hours in excess of 40 per week.
- Raise salaries. Employers may choose to raise the salaries of employees who meet the duties test, regularly work overtime and are close to the new salary threshold to above the $47,476 to maintain their exemption from overtime pay.
- Limit employees’ hours. Employers may wish to adjust employee schedules in order to avoid exceeding 40 hours per week.
- Reallocate wages. Employers can adjust the amount of an employee’s earnings to reallocate it between regular wages and overtime so that the total amount paid to the employee remains largely the same. However, the hourly wage can’t be below minimum wage, and the regular wages can’t fluctuate weekly.
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