On May 18, 2016, the U.S. Department of Labor published a new final overtime rule that will take effect on December 1, 2016, and which is expected to extend overtime pay eligibility to approximately one in five U.S. workers who are currently classified as overtime exempt.  The new rule is projected to add $12 billion to U.S. employer payrolls over the next 10 years – an average of $1.2 billion per year.  Is your business affected by this change?

What do employers need to know about the new rule?

(1)  Increases Salary Thresholds for Exempt Employees: The threshold salaries to qualify as overtime exempt increase dramatically from those under the old rule.

  • Standard salary level threshold for exemption will increase to $913 per week (or $47,476 per year);
  • Highly Compensated Employees salary level threshold for exemption will increase to $134,000 per year.

(2)  Automatic Updates to Salary Levels Going Forward: This is the first increase to salary thresholds since 2004 and only the second change since 1975. Going forward, threshold salaries will automatically increase every three years starting in January 2020.

(3)  No Change to Duties Test: The Rule does not alter the duties test for employees qualifying under the executive, administrative, or professional exemptions.

(4)  Bonuses and Commissions: Employers can use non-discretionary bonuses, incentive pay, and commissions to constitute up to ten percent of the threshold salaries, provided the payments are made at least quarterly.

What should employers do to ensure compliance with the new rule?

Employers with employees that lose their exemption under the new rule have the following options to bring their business into compliance:

  • Employers can change the classification of affected employees and pay them time-and-a-half for overtime work.
    • Employers can continue to pay these employees the same salary, but must pay them time-and-a-half the hourly equivalent of their salary for hours worked in excess of 40 per week.  This may be the best option for Employers whose employees tend to work a regular work schedule that rarely exceeds 40 hours per week.
  • They can raise salaries of otherwise exempt employees above the new salary thresholds.
    • This option may be most attractive for employees whose salaries are close to the new threshold, as it simplifies record keeping for employers.  Remember that employees must still meet the Duties Test to qualify as exempt!

Photo Credit: sheelamohan at

The information contained on this blog is not legal advice, nor does this blog create an attorney-client relationship. Klein Bussell attorneys do not blog about pending matters handled on behalf of our clients and will never disclose client confidences.

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