On May 18, 2016 President Obama and Secretary Perez announced the publication of the Department of Labor’s Final Rule which ends two years of speculation regarding the effect which the proposal would have on both employees and employers.

According to the Department of Labor, these rules will affect more than 4 million workers. The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from overtime pay.

Specifically, the Final Rule:

  1. Sets the standard salary level of earnings of full-time salaried workers at $913 per week or $47,476 annually for full year workers. This means that salaried workers earning less that these amounts will be considered non-exempt and therefore eligible for overtime pay when the law takes effect. (This replaces the current levels of $455 per week and $23,660 per year)
  2. Sets the total annual compensation requirement for highly compensated employees to $134,004. (This replaces the current level of $100,000 for highly compensated employees). Eligibility for overtime for employees earning between $47,476 and $134,004 will be determined by the same duties tests which are currently in effect.
  3. Established a mechanism for automatically updating the salary and compensation levels every three years beginning on January 1, 2020.

The Final Rule amends the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. These payments must be made at least on a quarterly basis.

These changes require that employers analyze their overtime pay exposure well in advance of the December 1, 2016 effective date. While these change will likely result in increased costs for employers, planning ahead will allow for making any necessary adjustments or simply budgeting for these increased costs.

Let the professionals at H&J CPAs help you navigate this new rule and plan for any changes in your business. contact us today.