If you have salaried employees making less than $47,476 per year, new DOL rules will impact you effective December 1, 2016

The Department of Labor has announced changes to the Fair Labor Standards Act that will affect many employers. Here’s how it impacts you:

  • There are 3 tests that must be met for executive, administrative and professional (EAP) employees to be paid salary exempt from overtime, one of which is the Salary Level Test
  • Up until December 1, 2016, the Salary Level Test threshold is $23,660 ($455/week)
  • Effective December 1, 2016, EAP employees must be paid $47,476 ($913/week) in order to qualify as a salaried employee exempt from overtime. This means that if you have EAP employees being paid less than $47,476 salary exempt from overtime, you must make changes or you will not comply with the law.
  • Nondiscretionary bonuses and incentive payments (including commissions) can now be included to meet the $47,476 threshold. However, these payments are capped at 10% of the Salary Level Test threshold (or $4,748) and can only be included if these payments are made to employees at least quarterly
  • The Salary Level Test will be automatically updated every 3 years beginning January 1, 2020

So, what should you do to comply?

Options to comply with the Salary Level Test include:

• Increase the salary and/or nondiscretionary/incentive payments (within the limitations noted above) to total at least $47,476 in order to retain overtime exempt status

• Convert from salary to hourly and pay overtime at 1.5 times regular hourly rate

• Convert from salary to hourly and eliminate overtime hours

• For employees converted from salaried to hourly, the hourly rate can be calculated in several ways as long as it doesn’t fall below minimum wage requirements. Options based on $40,000 salary include:

Calculate hourly rate based on regular hours per year:

  • There are 2,080 regular hours in a year (40 hours per week X 52 weeks)
  • Current salary / 2,080 = hourly rate
  • Example: $40,000 / 2,080 = $19.23/hour

If employees regularly work overtime and you don’t want to reduce their hours, but you also don’t want to pay more than you are currently:

  • Calculate straight-time equivalent hours = 2,080 + (52 X overtime hours X 1.5)
  • Example, if employee normally works 5 hours overtime per week
    • 2,080 + (52 X 5 X 1.5) = 2,470
    • $40,000 / 2,470 = $16.19/hour

We welcome any questions you have on these new rulings.  Please contact our office if you would like to discuss how these rulings will impact your business and the best course of action for you to take.