A Quick Guide to the New 2016 Overtime Rule
by Trevor Russ
Overtime is getting its time in the limelight. President Obama and Labor Secretary Perez just quintupled the number of people eligible for overtime pay in one of the president’s last moves pushing for workers’ rights. With this final ruling from the Department of Labor (DOL), anyone who makes less than $913 a week, or $47,476 a year, will soon get paid for working any extra hours that go beyond a 40-hour workweek.
As you can guess, a handful of implications emerge for both employees and employers. This article will shed light on the biggest things you need to know about this brand new piece of legislation.
What does it say?
First, let’s breeze through a quick lesson about the Fair Labor Standards Act (FLSA). Under the Act, workers are separated into two pockets: exempt and nonexempt. Exempt employees don’t qualify for overtime because they’re excused from the laws in the FLSA, while nonexempt employees do. In general, an employee has to meet three conditions in order to be labeled as exempt:
Salary level test: Gets paid above a certain salary for the year (this is the test that was recently adjusted).
Salary base test: Receives a concrete salary that can’t be changed, even if the employee makes a mistake on the job.
Duties test: Needs to be in an executive, administrative, outside sales, computer, or professional role. This determination can get complicated, so if you have any questions, talk to an attorney, CPA, or other business advisor.
Today, workers who earn $23,660 or less must collect overtime pay, or time and a half of their normal hourly rate, for working over 40 hours in a single week. These employees are nonexempt, or in other words, the FLSA rules apply to them.
The new overtime law that was passed on May 18th bumps the nonexempt status to anyone making $47,476 or less. This opens up the benefits of overtime pay to millions of people.
The law also contains two other crucial points:
The salary level for exempt employees will be revisited every three years to help account for inflation.
The salary threshold for a highly compensated employee (HCE) is now increased to $134,004 from $100,000. The main difference between a HCE and a non-HCE is that if an employee qualifies as a HCE, the duties tests is less stringent.
As it stands currently, the new overtime law will go into effect on December 1st, 2016. There is a chance that certain Republicans in Congress will attempt to block the Final Rule but right now there is no way to know if they will be successful or not. Companies should take steps now to plan for the change.
This article originally appeared on Gusto.com