DOL Announces Final Ruling on Overtime

As many of you have read or heard, the Department of Labor has moved forward in finalizing a rule to update overtime protections. The Final Rule takes effect on December 1, 2016. There are three key provisions to the Final Rule.

• Standard salary level will be set at $47,476 annually for a full year.
• Total annual compensation requirement for highly compensated employees will be set to $134,004.
• Automatic updates to the salary and compensation levels every three years, beginning on January 1, 2020.

Non-discretionary Bonuses and Incentive Payments

The Final Rule is allowing employers to use non-discretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. Examples of such payments could include: non-discretionary bonuses tied to productivity and profitability. In order to apply these non-discretionary bonuses and incentive payments toward a portion of the salary level test, employers are required to pay such payment on a quarterly or more frequent basis. It also allows employers to make a “catch up” payment. As many employers pay significantly larger bonuses, the Final Rule will cap the amount eligible for the standard salary level at 10%.

In the coming months, the Department of Labor plans to release technical guidance documents to help employers come into compliance with the new rule.

What Do We Do Now?

There are a couple of steps to take now in preparation for December 1:

• First, review your current salary positions’ job descriptions to ensure that they are properly categorized. To be considered salaried, the employee’s job must pass the salary and duties test. You can find this at http://www.dol.gov/whd/overtime_pay.htm.
• Second, review the compensation of your current salaried employees. If you decide to change some of your employees’ positions to hourly based on the duties test, make sure not to decrease their annual compensation when changing their rate to an hourly rate.