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New Overtime Rules to Take Effect in 2016

Posted 4:44 PM by

Editor's Note: A federal judge issued an injunction Nov. 22 that indefinitely delays the effective date of the new overtime regulations.

In 2015, the Department of Labor made proposed changes to the overtime regulations. After a period of public commentary and evaluation of those comments, the Department of Labor has now issued new overtime regulations, marking the first significant changes to the overtime regulations since 2004. These new regulations will likely have an impact on all employers, including not-for-profit employers.

Employers must pay employees overtime unless the employee is classified as exempt. There are three tests to determine whether an employee meets the “white-collar” exemptions under the overtime regulations. These tests have not changed under the new regulations. All three tests need to be met in order for the employee to be exempt. These tests are the:

  1. Salary-based test – the employee is salaried.
  2. Salary-level test – the employee is paid at least $913 per week or $47,476 annually. 
  3. Duties test – the employee primarily performs executive, administrative or professional duties.
The new overtime regulations are effective Dec. 1, 2016. Under these regulations, the minimum salary level for employees classified as exempt is $47,476 annually or $913 weekly. Previously, these amounts were $23,660 annually or $455 weekly. These salary levels are set to be adjusted every three years beginning Jan. 1, 2020.
Another change included in the new overtime regulations is the use of nondiscretionary bonuses and incentive payments to meet up to 10 percent of the salary amount. The bonuses must be paid out on at least a quarterly basis. Examples of such payments include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula. 
Certain employees, including teachers, doctors and lawyers, are not subject to the salary-based or salary-level tests in determining exemption from the overtime regulations. There are also additional exemptions from the overtime regulations for outside sales employees and highly compensated employees.
As an employer, the following steps can be taken to ensure compliance with the new overtime regulations:
  • Identify all employees who may be affected by the change to the overtime regulations.
  • Apply the salary-based, salary-level and duties tests for the affected employees to determine their proper classification as either exempt or non-exempt.
  • Develop a plan to comply with the new regulations. Compensation options to consider when developing a plan to comply with the regulations include:
    • Increasing the employee’s salary to meet the minimum salary-level requirements.
    • Reclassifying the employee as non-exempt and limit that employee’s overtime.
    • Reclassifying the employee as non-exempt and lowering the employee’s compensation rate to offset overtime costs.
    • Paying the employee a salary plus overtime.
    • Using nondiscretionary bonuses and incentive payments to bridge the gap between current salary and the salary-level minimum.

About the Author
Jim Nestor is principal, chief human resources officer for Katz, Sapper & Miller. Jim heads up all human resource efforts for the firm, including HR strategy, internal recruiting, utilization, wellness, benefits, performance management, and training. Connect with him on LinkedIn

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