The U.S. Department of Labor issued regulations this week that will have the effect of making more “white‑collar” workers eligible for overtime.
White-collar exemptions from overtime
Under the federal Fair Labor Standards Act most workers are eligible for overtime when they work more than 40 hours in a week. So‑called white‑collar workers (executives, professionals, and administrative employees), however, are exempt from those requirements.
A white‑collar worker must meet both of two different tests before the employer may treat him or her as exempt from overtime. First, the worker must perform exempt duties. Second, the employee also must be paid on a salary basis of not less than $455.00 per week ($23,660.00 per year).
New regulations increase salary level necessary to treat white-collar worker as exempt
The new DOL regulations increase the salary level that is necessary to treat a white‑collar worker as exempt. Under the new regulations, a white‑collar worker will not be exempt unless he or she earns a salary of at least $684.00 per week ($35,568.00 per year). Workers who presently are exempt but who earn annual salaries between $23,660.00 and $35,568.00, therefore, will no longer be exempt from overtime after January 1, when the new regulations go into effect.
The new regulations allow employers to use certain bonuses and incentive payments to make up no more than 10 percent of the annual compensation level needed to qualify for the white‑collar exemption. That is, a worker whose annual salary is only $32,012.00 (90 percent of $35,568.00) still would be exempt if the employer makes up the difference with a one‑time nondiscretionary bonus or incentive compensation “catch‑up” payment.
Slight increase in salary level for “highly compensated” employees
The new regulations also slightly increase the salary level that is required to qualify for the “highly compensated employee” exemption from overtime.
Under that exemption, white‑collar workers who are paid on the basis of an annual salary of at least $100,000.00 qualify more easily for the exemption from overtime. The new regulations tighten those standards slightly; under the new regulations, white‑collar workers will have to earn total annual compensation of at least $107,432.00 to qualify for the exemption.
The new regulations also allow employers to make “catch‑up” payments to push white‑collar workers over the “highly compensated” threshold. That is, if an employee’s total annual compensation does not reach $107,432.00 by the last pay period of the year, the employer may make one additional payment of whatever amount suffices to exceed the threshold.
Effective January 1
As noted, the new regulations will take effect on January 1. Employers should identify those workers on their roster, if any, who presently are exempt but who earn an annual salary of between $23,660.00 and $35,568.00; such workers will no longer be exempt from overtime after January 1. Employers will have to consider whether to leave those workers’ salaries as is and start paying them overtime, or to increase those workers’ salaries to the new threshold.