In 1975, roughly 62% of salaried American workers were covered by overtime protections. Those protections now cover only 7% of salaried American workers today, according to the White House. The current salary threshold of $23,660 has remained in place for more than a decade, which now fails to cover many middle-class and low-wage workers the rule was intended to protect.
While affected employees welcome the change, employers are not so happy. The final salary level of $47,476 was a minor reduction from the salary level of $50,440 that was initially proposed by the DOL. The rule change will cost many employers more money and/or force employers to re-organize segments of their workforce or job categories.
The DOL's final overtime rule will still nearly double the salary threshold for overtime exemption effective December 1, 2016, and the rule requires salary updates every three years thereafter. The first scheduled update will be effective January 1, 2020 and it will increase the salary level to approximately $51,168. The amount will be adjusted closer to the effective date based on actual data available at that time.
The new salary test ($47,476 per year or $913 per week) will be based on the 40th percentile of full-time salaried workers in the South - the lowest-income Census region.
Currently, any workers who earn more than $23,660 per year are not eligible for overtime pay beyond the standard 40 hours per week if they also perform certain executive, professional, or admin duties. This new ruling leaves the current duties test in place which is important since there had been wide speculation that the final rule would modify the duties test.
The new regulations also increase the "highly compensated employee" threshold from $100,000 to $134,004, under which employers may establish the overtime exemption by meeting far less stringent duties tests - this threshold will also be adjusted every three years and is expected to increase to approximately $147,524 in 2020.
Businesses will need to examine their employee's pay to ensure they're complying with overtime.
The DOL estimates employers will spend $592.7 million to comply with the new rule.
There are a few important things to note about the proposed changes to the overtime eligibility rules in addition to compliance options discussed above:
Employers always had a legal obligation to keep and track employee hours. However, if you have been lax in that area up to this point in time, there is a greater incentive in the form of cost savings to track employee hours in order to remain compliant with these new threshold changes.