23 May New Overtime Rule Issued by Department of Labor

On May 18, the Department of Labor published its final rule updating overtime regulations for salaried employees.  The Department first published its intent to change overtime rules in July 2015, and received over 270,000 comments in response to the proposal which influenced the final rule as issued.

Key changes include:

• The minimum salary required to be Exempt from overtime increases from $455 per week to $913 per week ($47,476 per year). This salary level was set based on the 40^th percentile of earnings of full-time salaried workers in the lowest wage region of the US.
• The definition of Highly Compensated Employees was increased to the 90^th percentile of full-time salaried workers nationally, currently $134,004.
• For the first time, nondiscretionary bonus and commission can satisfy up to 10% of the new required salary level.
• Establishes automatic updates of the minimum salary level every three years.

The Job Duties tests for Administrative, Executive, Professional (including Computer Professional) and Outside Sales positions that allow an employer to classify those employees as OT Exempt remain unchanged.

The Administration estimates that 4.2 million new workers will qualify for overtime under the updated salary limits, which take effect on December 1.  The effect will be felt most acutely in the retail and food service industries, where employees currently classed as management are often below the new thresholds.

Relevance for Contingent Labor

In the world of contingent labor, salaried employees are relatively rare and therefore the new rule will have limited impact.  However, there are programs where workers are classified as OT Exempt and paid on fixed daily, weekly, or monthly rates.  In those cases, the employer will need to evaluate carefully whether their worker will meet the new salary requirement to remain OT Exempt.  In addition, PrideOne recommends that staffing agencies take this opportunity to look carefully at the job descriptions for all workers, particularly Computer Professionals, who are currently classified as OT Exempt.

While clients often assume any worker who works in the IT department will meet the test, the employer is responsible for proper classification and is on the hook for significant back pay and damages in case a worker is found to be ‘misclassified.’  The Department of Labor provides clear guidance of who does and does not meet the Computer Exempt test on its website here.  In cases where the worker may no longer meet the test due to either salary or duties, we recommend the consulting company or staffing supplier begin having conversations with clients early to educate them on the rule change and its possible effect on bill rates and/or expected weekly work hours.

Another impact of the new rule on staffing companies is with internal staff.  Companies need to begin to evaluate their internal employees to determine whether their recruiters, salespeople and other staff currently classified as OT Exempt will meet the salary test as of December 1.  Commission and bonus can contribute up to 10% to meet the threshold.  If their salary is below the new threshold, the employer will need to either increase the salary or begin to pay overtime for workers who go beyond 40 hours per week.

Author

Kate Goss
Managing Director, PrideOne

With over 20 years of experience in contingent workforce management and staffing, Kate is a trusted advisor to clients who seek IT and non-IT contingent labor vendor management solutions, including payroll and passthrough programs.