What You Need to Know About Overtime Exemption Rules

Next month is the month many employers are, and have been, dreading for quite some time now. On December 1, 2016, the overtime exemption rules will be updated to reflect a hefty pay increase for those workers who are exempt. Not sure what qualifies as an exempt employee? According to the American Payroll Association, an exempt employee is one who does not need to be paid the minimum wage or overtime pay; with this, the employer does not need to record details involving their work (such as hours worked). 

Over the years this has been updated to reflect our ever-changing workforce, but this year we are seeing a major update. This has caused many businesses to re-evaluate whether their employees are truly exempt or not. Currently, any employee earning less than $455 per week ($23,660 per year) is generally thought to be nonexempt, therefore entitled to overtime pay regardless of whether or not they are hourly or salary. 

On July 6, 2015, the Department of Labor announced a proposed update to that salary threshold in order to promote fair pay for a day's work. After a few proposed changes, we now know the salary threshold will be set to $913 per week ($47,476 per year) as of December 1, 2016. This change is forcing employers to take a harder look at who should be classified as exempt and who is actually nonexempt. To qualify as an exempt employee, certain criteria must be met regarding job duties and pay must be no less than $455 per week. Some exempt professions include outside sales, computer employees, and administrative professionals. 

While some states do have overtime pay provisions, many do not, which means those employers under the Fair Labor Standards Act (FLSA) must follow federal pay requirements. Michigan has no provision and automatically follows the federal guidelines for overtime pay. If a state does set forth its own rules in regards to overtime pay, it can only be enforced for those who are covered under the FLSA if the rule is more favorable to the employee than the federal rule. For example, Alaska employers have a minimum weekly salary of $780 per week as opposed to the $455 per week under FLSA. This means Alaskan workers get the benefit of their state’s provision. 

If you find yourself needing to evaluate your employee classification or adjust your employees’ salaries, you have until December 1st to do so. If you need assistance or want to know how you can better prepare for the upcoming DOL changes follow the link below. 

Sources: https://www.dol.gov/whd/overtime/fs17r_geico.htm
APA’s Guide to State Payroll Laws 2016 Edition