HR|Experts Update: DOL Issues Final Overtime Rules: An Overview

2016 Alliance sponsor feature article by Medical Mutual

On May 18, 2016, the U.S. DOL issued their much anticipated final Section 541 Overtime Rules for exempt employees.

Below is a list of highlights of the final Section 541 Overtime Rules:

  • The effective date of these changes is December 1, 2016. Employers are expected to be in compliance by that date.
  • The primary position duty tests remain unchanged.
  • The minimum salary threshold will increase from the present $455 weekly/$23,660 annually to $913 weekly/$47,476 annually.
  • The new minimum rate above is based on a benchmark at the 40th percentile of salaries in the lowest paying census area in the U.S. (currently the South region).
  • To ensure the minimum salaries remain at the 40th percentile there is an automatic increase mechanism provision built into the new rules providing for a review and potential adjustment every 3 years. The first of which will occur January 1, 2020.
  • Up to 10% of the salary threshold may be covered by non-discretionary bonuses and commissions. Such bonuses must be paid out at least on a quarterly basis to qualify. Should the actual bonus amount fall short, and the base salary didn’t meet the entire $913/week requirement, a catch-up payment is allowed (required) to make up the difference and must be paid no later than the first pay period following the quarter in question. If a catch-up payment is not made, the employee is due overtime for any hours worked above 40 in any weeks during that quarter.
  • For highly compensated employees (HCE) the minimum annual salary increased from the present $100,000 to $134,004 effective December 1, 2016. The HCE test combines this higher earnings level requirement with a relaxed duties test. To claim the HCE exemption under the Final Rule, employers must pay workers at least the standard weekly salary level of at least $913 per week on a salary or fee basis, while the remainder of the total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation. Note, the HCE exemption is really only used when you have a highly paid employee who doesn’t meet all of the standard duties tests for executives, professionals or administrators.

While employers have approximately 5 months to prepare for the changes, the time to take action is now. First and foremost, conduct an internal audit to identify positions and employees potentially affected (i.e. any exempt employee making below $47,476 annually or HCE making below $134,000 a year). Also use this opportunity to look at positions that don’t meet the duties test regardless of salary level. Once you have those potentially affected employees identified, evaluate compensation options. Decide how you will bring those individuals into compliance. It will also be important to review your practice’s wage and hour policies and procedures. Finally, do not forget to develop an education and communication plan for managers and employees to clarify what, why, and when changes will be made.

For a copy of the HR|Experts Overtime Rule Planning & Implementation Tool and other related, sample communication templates and information regarding these new overtime regulations, please contact Breni Malpass, Medical Mutual’s HR|Experts consultant, at or 919-431-6096.