New Overtime Pay Rules

Posted on May 27, 2016 by Rick Rossignol

The Department announced a Final Rule focused primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. For more information, see  http://www.dol.gov/whd/overtime/final2016/.

The primary change raises the salary test to a weekly salary $913.00 or annual salary $47,476. The salary test in CA currently is $800.00 per week or $41,600 per year. Because of changes in the minimum over the next 5 years employers in CA have to be focused on both the Federal rule as well as the state and city. The new rule takes place starting in December 2016 and will result in a 13% increase in pay to maintain their exempt status. https://www.dol.gov/featured/overtime/

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

What does it mean to you?

  • Audit exempt level employee for compliance with New Salary test.  
  • Two choices reclassify as non-exempt. Increase pay to meet the new salary level.
  • Does your exempt level employees meet both the salary test and the duties?
  • Develop a communication strategy for employees.
  • Some Exempt employee will be reclassified to non-exempt and will be subject to the FSLA and must start completing time sheets and be paid overtime.
  • Develop policies and procedures to controls cost.

Employer in CA should keep in mind that the minimum wage increases annually until it reaches $15.00 an hour. The salary test in CA is two times minimum wage.  Eventually CA standard will be higher than the Feds. In addition, be aware of Cities that have passed higher minimum wages and the rates to be exempt will be higher in that city. For example, San Francisco the weekly salary to be exempt is $1040 a week effective July 1, 2016.

Effective Date Minimum Wage Weekly Salary Monthly Salary Annual Salary
January 1, 2017 $10.50 $840 $3,640 $43,680
January 1, 2018 $11.00 $880 $3,813.33 $45,760
January 1, 2019 $12.00 $960 $4,160 $49,920
January 1, 2020 $13.00 $1,040 $4,506.67 $54,080
January 1, 2021 $14.00 $1,120 $4,853.33 $58,240
January 1, 2022 $15.00 $1,200 $5,200 $62,400

 

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