June 7, 2016
Expanded Overtime Pay Eligibility, Who Does it Impact?
On December 1, 2016, an estimated 4.2 million workers will become eligible for overtime pay. The Department of Labor recently published its final rule, which expands the overtime pay eligibility threshold. Employees earning a salary of less than $47,476, regardless of job responsibilities, will automatically qualify for overtime pay. This is more than double the $23,660 threshold that has been in place since 2004, which many employers feel is too drastic of a change.
Does this mean bigger paychecks for millions of employees? Maybe, but that may not be the case for everyone. With a broad class of workers newly eligible for overtime pay, employers are trying to figure out how these changes impact their bottom line. Employers are considering many options to deal with the new threshold, including:
- Pay overtime. Employers may simply bite the bullet and pay overtime.
- Give a raise. If salaries are near the new threshold, employers could increase base salaries to avoid paying overtime. However, employees not affected by the change may expect an increase in pay as well.
- Change your pay structure. Employers could change salaried employees making less than the new threshold to an hourly rate.
- Limit hours. Employers could prevent employees from working more than an 8-hour day to avoid paying overtime. Further, employers may hire more entry-level employees or seasonal help to avoid paying overtime to their affected salaried employees.
- Work long hours. Some employers may reduce the base salary of employees who regularly work more than 40 hours a week, with the expectation that overtime pay will make up the difference.
- Change benefits. Employers could offer less generous benefits to compensate for the overtime they will be required to pay.
The pay threshold for “highly compensated” employees has also increased from $100,000 to $134,004. Regardless of their job responsibilities, a salaried employee who earns more than $134,004 will automatically be classified as “exempt” and, therefore, not eligible for overtime pay.
For purposes of determining an employee’s exempt/non-exempt status, an employee’s salary includes nondiscretionary bonuses, incentive payments and commissions up to 10 percent of the new threshold levels.
Additionally, these thresholds will be adjusted every three years beginning January 1, 2020. The revised salary levels will be published 150 days prior to their effective dates.