The U.S. Department of Labor has issued its long-awaited proposed changes to the nation’s overtime rules for American workers, proposing to increase the threshold for exempt status by more than 50% to $55,000.
If the proposed rules become permanent rules, employers will need to prepare their bookkeeping and budgets to account for the new salary caps for qualifying for overtime pay. Employers that don’t raise exempt salaries to meet the new caps will have to pay overtime to those who work more than eight hours a day or 40 hours in a week.
While this rule is a proposal, employment law experts predict that the DOL will expedite the change and that it could become permanent in the next two months, giving employers a short window to make a decision and make changes to their accounting.
Meanwhile, you can expect that business groups will protest this rule-making and that litigation to stop the rule will ensue. But that should not stop you from taking steps to comply with the proposed rule.
What’s changing
The exempt salary threshold will be bumped up to $1,059 per week, from the current $684. That means workers who earn more than $55,068 per year would be exempt from overtime pay, a significant increase from the current $35,568.
In addition to the new salary threshold, the proposed rule would:
- Automatically update the salary threshold every three years.
- Raise the threshold for the “highly compensated employee” exemption to $143,988 (from the current threshold of $107,432).
Remember that there is a two-pronged test for classifying someone as an exempt employee:
- Their salary, which will have to be more than $55,068 per year.
- The duties test, which outlines exactly what someone’s duties must be in order to qualify for exempt status.
There are different exemptions with different qualifying responsibilities:
Executive exemption — These employees must manage a department or division, direct the work of at least two workers and have the authority to hire and fire.
Administrative exemption — Primary duties must be office or non-manual work related to the management or general business operations, and the employee’s duties must include exercising independent judgment on significant issues.
Professional exemption — The employee’s primary duty must be the performance of work requiring advanced knowledge, predominantly intellectual in character and which requires the consistent exercise of discretion and judgment.
How to prepare
Start by making a list of all your current exempt employees who earn between $35,568 and $55,068 a year.
You will have a decision to make about each of these workers:
- Raise their salaries to meet the new threshold, or
- Change them to non-exempt status so they are eligible for overtime pay if they work extra hours. You’ll also have to put in place systems for tracking their hours worked, including overtime.
Also, your benefits package may differ for non-exempt and exempt workers and you may have to change benefits for anyone whose status changes.
You should also plan how you are going to communicate these changes to your workforce.