The new federal overtime rule takes effect on Jan. 1 and that includes a three-part test for determining when white-collar workers are exempt or must be paid overtime for working more than 40 hours in a week.
Parts of the new rules that involve exempt staff include:
- The salary threshold for the white-collar exemption from overtime pay will rise to $684 per week, or $35,568 per year;
- The new rules also raise the salary threshold for highly compensated employees (HCE) who are exempt from The Fair Labor Standards Act (FLSA) overtime pay requirements from $100,000 per year to $107,432 per year; and,
- The rules allow employers to satisfy up to 10 percent of the standard salary level by using nondiscretionary bonuses and incentive payments.
According to the National Council of Nonprofits, at issue is the provision of the federal FLSA “that exempts certain employees from the requirement that they receive time-and-a-half overtime pay for work in excess of 40 hours in a work week.” The salary threshold is one of a three-part test that must be satisfied before a person can be deemed “exempt.” Those three parts include:
- The employee must be paid on a salary basis;
- The employee be paid at least the salary threshold set forth by U.S. Department of Labor (at issue in the Final Rule); and,
- The person must satisfy a duties test as executive, administrative, or professional workers. The Final Rule does not change the salary basis or duties tests; only the salary threshold is at issue.
The U.S. Department of Labor announced further that it intends to propose updates to the salary and compensation levels on a regular basis, to ensure that these levels provide useful tests for exemption. It declined, however, to set a regular schedule, probably every four years.
According to the National Council of Nonprofits, the Overtime Final Rule implements a 50-percent increase in the salary level test that was last set 15 years earlier, a period that saw a 33-percent increase in the federal poverty level. The Labor Department estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of the increase to the standard salary level. It also estimates that a little more than 100,000 employees will be entitled to overtime pay as a result of the increase to the HCE level.
For more on the new rules and an extensive Q&A on the topic, go to https://www.councilofnonprofits.org