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On a Salary? – You may be entitled to more pay under new Obama rules


Employees on salary may be entitled to more money coming up in December 2016. – Contact an Employment Attorney to learn more.

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On May 18, 2016, President Obama and Department of Labor Secretary Perez announced an update to the Department of Labor’s final rule on overtime regulations. This update which will become effective on December 1, 2016 and when implemented is supposed to allow an additional 4 million US worker’s to be entitled to overtime pay. The new updated final rule focuses on increasing the Overtime Exempt level for Executive, Administrative, and Professional workers to be exempt from overtime pay. By increasing the exempt overtime threshold which is currently at $23,660 to $47,476, more employees will not be eligible for overtime pay. Employers now have a decision to make for employees that make less the $47,476 a year to either pay them overtime pay (a time and half for any additional hours work over 40 hours a week) or raise that employee’s base salary to the new $47,476 threshold in order for that employee to be exempt from overtime pay. Another key provision of this update to the final rule sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,004 from its current threshold of $100,000. This means that for highly compensated employees, they need to make at least $134,004 annually to be considered exempt from overtime pay (in addition to the other criteria that is unchanged by the new rule to be met to qualify as a highly compensated employee).

Further, the new update Final Rule has established mechanism that will automatically update the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption. Additionally, another new and important modification to the final rule is that employers are now allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level in calculating base salary.
What does all this mean for the Employees? The Employers? Proponents of President Obama’s new rule to overtime pay say that this is a long overdue update to the old rule rewarding hard work with more compensation, and thus putting more money into the pockets of the middle class working employees. However, this new rule is also met with fierce opposition especially from the employers. Opponents of the new rule say that this update would effectively convert millions of salaried professional employees into hourly workers required to clock their time. This would force employers to have to incur additional expenditure to update their payroll systems to be able to track their employee’s hours. Employers contend that with the current state of business with high competition and “razer thin profit margins”, this new rule will fall short of its intended effect of increasing the income of the middle class employees. This is because, employers in order to meet the requirements of the new rule will offset the cost of these protections by cutting employees’ hours or by reducing their base wages or benefits. Also this, rule would incentivize employers to create more overtime exempt “managerial positions” which could create a more hierarchical employment structure and this increasing inefficiency. Nevertheless, whether this new update to the overtime regulation will ultimately improve the working middle class’s income or not is yet to be seen and only time will tell if the new rule will achieve its goal. But for now, be prepared for this significant change in employment law across the United States