Recently, the Obama administration made an announcement concerning the classification of exempt employees and the effect on the payment of overtime. Exempt employees are employees who are exempt from minimum wage and overtime rules based on job duties and compensation structure. The following is an article created by our Employment and Labor attorneys to explain the ruling and the effect of the ruling. I would like to thank Mike Bogdan, Karen Soehnlen McQueen, and Leslie Kuntz for this information. I thought it would be prudent to share this information since it will draw a lot of interest from employers and employees.
The Department of Labor’s final rule updating the federal overtime regulations, which dramatically increases the salary level required for exempt employees, will be effective December 1, 2016. The final rule updates the salary level required for the exemption. Currently, the weekly salary level under federal law is $455, which is $23,660 annually. On December 1, 2016, the federal minimum salary level for exempt employees will increase to $913 per week or $47,476 annually. Employees who do not earn this minimum amount per week must be paid overtime for all hours worked in excess of 40 hours per workweek pursuant to the Fair Labor Standards Act (“FLSA”). In addition, the final rule establishes that the minimum salary level will be automatically evaluated and updated every three years with the next recalculation effective January 1, 2020.
Pursuant to the FLSA, executive, administrative and professional employees are exempt from the minimum wage and overtime protections of the Act. To qualify for the exemption: (1) the employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations. However, please note that the new salary — $47,476 – is a threshold that must be met. If an employee is not paid that minimum salary, the employee will be considered eligible for overtime payments for all hours worked in excess of 40 hours per workweek. Employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of this minimum salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the salary level test, such payments must be paid on a quarterly or more frequent basis.
As the final rule will be effective December 1, 2016, it is important for employers to ensure that exempt executive, administrative, and professional employees make at least $47,476 annually by that date to ensure their continued exempt status or to change their compensation structure and timekeeping requirements so as to ensure compliance if, in fact, they will become nonexempt employees on and after December 1, 2016.
For more information on this topic and for various planning opportunities, please consult your Labor and Employment attorney.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663