Jun 05

New Overtime Rules You Need to Know Now!

June 2016

New overtime rules can materially affect your employee costs and your bottom line. The U.S. Department of Labor (DOL) announced a new and final rule on May 18, 2016 regarding overtime wage payments. The DOL has materially revised and increased salary qualifications for what we know as “white collar exemptions” under the Fair Labor Standards Act (FLSA). These changes are expected to impact 13,100,000 employees across every business sector.

This final rule will be effective on seemingly short notice to America’s businesses on December 1, 2016. It increases the salary an employee must be paid in order to qualify for a “white collar exemption.” The required salary level for the exemption will be increased to $47,476 per year and automatically updated every three years. However, the new rule will allow non-discretionary bonuses, commissions, and other incentive pay to satisfy up to 10% of the required minimum if those payments are made at least quarterly.

The final rule does not modify the duties test employees must meet to qualify for a white-collar exemption.

Using the overtime exemption requires employers to meet the salary basis, salary level, and employee duties tests. All three tests must be met for individual employees or no overtime exemptions are allowed.

The salary basis test ensures that wages are fixed and not subjectively able to be reduced. The salary level test requires the employee to be compensated at the minimum salary to be considered for exempt status. The current level has been set at an annual minimum of $23,660, but that will basically be doubled to the new $47,476 level effective December 1, 2016.

The duties test requires evaluating an employee’s responsibilities to demonstrate that their regular work engages them in executive, administrative, outside sales, professional services, and information technology, or be highly compensated. Some of these job duties can be subjective so I would encourage you to consult with legal counsel or a professional HR consultant to make sure you have interpreted the duties classifications correctly.

Highly compensated salary requirements are also being increased from the current $100,000 to $134,004 effective December 1, 2016. Employers may also include non-discretionary bonuses, commissions and other incentive payments so long as the employee receives a fixed minimum salary equal to the new $47,476.

Failing to review and comply with the new rules can cause employers to face employee litigation, government injunctions, and civil fines up to $1,100 per violation as well as criminal charges for willful violations. Penalties up to $10,000, imprisonment up to six months, or both may be imposed.

These changes impact every business owner which is why I can’t stress enough that today is the time to review your employees’ status and compliance with current and tomorrow’s labor laws.

Richard “Gordy” Bunch is the EY Entrepreneur of the Year® for the Gulf Coast for Products and Services. He is also the founder, president, and CEO of The Woodlands Financial Group based in The Woodlands, Texas. You may submit suggested topics for future business columns to him at or through the editor of this publication.



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