Fewer Employees Will Qualify as Exempt From Federal Overtime Laws Under New Rule

Last Overtime2summer, the Department of Labor (DOL) issued a proposed rule that would increase the minimum salary requirement for workers to qualify as exempt from federal overtime rules. The DOL recently finalized the rule, which will go into effect on December 1, 2016. The DOL estimates that 4.2 million workers will now be eligible for overtime pay as a result of the changes.

Federal law requires employers to pay employees time-and-a-half when they work more than 40 hours in a workweek. However, employers can avoid paying overtime if employees fall within certain exemption categories. Some of the most common exemptions are the “white collar” exemptions for executive, administrative, and professional workers. In addition to meeting other requirements particular to each exemption, these employees must all be paid a minimum salary. The minimum salary has remained at $455 per week (or $23,660 annually) for many years.

Under the new rules, the minimum salary will increase to $913 per week for the white collar exemptions, which is the equivalent of $47,476 per year. The minimum salary will be automatically adjusted every three years, beginning on January 1, 2020, to make sure that it is consistent with increases or decreases in workers’ average weekly earnings in the U.S.

The new rule also increases the minimum salary necessary to qualify for the highly compensated employee exemption. This exemption is reserved for employees who perform office or nonmanual work and perform at least one of the duties required by the executive, administrative, or professional exemptions. The minimum salary will increase from $100,000 to $134,004 on December 1, 2016 and will receive automatic updates every three years as well.

In the past, employers could only count regular wages towards the salary threshold requirement. However, the new rule allows employers to count commissions and nondiscretionary bonuses (bonuses for meeting production goals, for example) towards up to 10% of the salary requirement, as long as such payments are made on at least a quarterly basis.