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Huge Overtime Pay Change for Salaried Workers

  • 24 February 2016
  • Author: Cari Holbrook
  • Number of views: 2960
Huge Overtime Pay Change for Salaried Workers

A new federal ruling mandates that all salaried workers, regardless of title or duties, are eligible for overtime if they earn $50,440 or less (effectively doubling the previous limit of $23,660). Experts believe that, under the ruling, businesses will find themselves more vulnerable to an audit and subject to sizable penalties for not accurately tracking and paying nonexempt employees for all hours worked. Those relying on paper time sheets, which are open to human error, and those not requiring employees to track hours at all may be particularly vulnerable.

The Department of Labor has posted a list of frequently asked questions about the proposed ruling. In summary:

  • The proposed rule applies to the types of employees already covered by the Fair Labor Standards Act (FLSA), which are employees of enterprises that have an annual gross volume of sales made, or business done, of $500,000 or more, and certain other businesses.
  • Qualifying salary rates are determined by the FLSA’s salary level test and salary basis test. Generally, an employee is paid on a salary basis if there is a "guaranteed minimum" amount of money promised for any work week in which work is performed. For more on these tests, click here.
  • Unless exempt, employees covered by the FLSA must receive overtime pay for all hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rates of pay.
  • Exempt white collar workers include most executive, administrative, professional and outside sales employees. Check here for those definitions. Certain professionals including doctors, lawyers, and teachers are also not subject to the salary level test. 
  • It's important to note that exempt employees can also include computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field performing specific duties, with a few exceptions.
  • Job titles do not determine exempt status, and the fact that a white collar employee is paid on a salary basis does not alone provide sufficient ground to exempt that employee from the FLSA's minimum wage and overtime requirements. For an exemption to apply, an employee's specific job duties and salary must meet all of the applicable requirements provided in the Department's regulations.
  • Nondiscretionary bonuses (such as production or performance bonuses) are currently not considered part of the proposed salary test.

According to The Wall Street Journal, the proposed $50,440 salary threshold may be indexed so that it automatically rises over time, perhaps by tying it to the inflation rate. In previous rule changes, that provision wasn’t included, and  the real value of the threshold eroded. The DOL is also proposing to set the “highly compensated employee annual compensation level” at $122,148 (from $100,000) for retirement plan discrimination testing purposes. This amount would also be adjusted annually.

The key is to not get distracted by the salary requirement alone since job types, tasks, bonuses and other factors weigh heavily in determine who is eligible and who is not.

How soon will these changes take effect? It’s uncertain. The DOL has pushed back its final ruling because the agency received 270,000 comments in response to its initial version. However, the changes are still expected to be passed sometime in 2016 so there’s no time to waste when it comes to revisiting your company’s payroll and procedures. For questions and concerns, feel free to contact us.

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