Though a long time in the making, the U.S. Department of Labor’s changes to overtime regulations take effect on December 1, 2016. Employers have just a few weeks left to make any necessary changes to their classification of executive, administrative, and professional (“EAP” or “white collar”) employees, for whom the threshold salary tests will be changing. Those employees whose salary level no longer meets the minimum threshold must be reclassified as non-exempt, and will therefore be entitled to overtime, unless they are exempt under some other provision (or the employer raises their salaries). Under the new rule, EAP employees must now be making $913 per week or $47,476 annually (an increase from the minimum of $455 per week or $23,660 per year) to maintain an overtime exemption on the basis of their salary level.
Employees who have been exempt from overtime under provisions relating to “highly compensated employees” (“HCE”) must be paid at least $134,004 per year (up from $100,000 per year) to retain this salary-based exemption. Because this change is being implemented for a partial calendar year, employers should pay extra attention to the classification of HCEs whose salaries have been at or near the prior threshold. While the DOL has yet to issue clear guidance on the subject, an employer will need to make sure that an employee’s “annual salary,” as defined in relation to a calendar year, a fiscal year, or some other period set in advance by the employer, continues to satisfy the salary threshold for HCEs. For employers that operate on a calendar year, the HCE threshold for 2016 should take into account the single month (December 2016) at which the threshold is at a higher rate. Using a rate of $100,000 per year for 11 months and $134, 004 per year for one month, the minimum annual salary necessary to retain the HCE exemption for the transition year of 2016 is $102,833.67.
Employers who have not yet reviewed how the upcoming changes will impact their white collar employees’ eligibility for overtime should do so now. Where an employee’s salary level no longer meets the minimum requirements (and no other exemption applies), an employer may need to reclassify the employee as non-exempt and begin paying the employee overtime. An employer may also have the option to increase an employee’s salary to maintain the exemption.