7 Things You Need to Know About the Department of Labor New Overtime Rule

The Department of Labor (DOL) has issued the long-anticipated new overtime rule, which more than doubles the minimum salary requirements for employees exempt from overtime pay. Hospitality establishments such as hotels and restaurants will be particularly impacted by the new rule, and should immediately conduct a thorough audit of their employment practices and make appropriate changes to their 2017 budgets. Here are 7 things you need to know about the DOL’s new overtime rule:

  1. Effective December 1, 2016, the minimum annual salary for exempt employees will be increased from $23,660 to $47,476 (or from $455/week to $913/week). In addition, the minimum annual salary for exempt highly compensated employees will be increased from $100,000 to $134,004. The effective date is unlikely to change and, therefore, all hospitality establishments should ensure that they are in compliance with the new rule before December 2016.
  2. The new Rule applies to all businesses, large and small. There is no “minimum number of employees” requirement for these changes to apply.
  3. The previous test for exempt employees was based on their duties and salaries. The new rule changes only the “salary” requirement. The new rule does not make any changes to the “duties” component. For example, if an employee’s duties already satisfy the applicable exemption requirements and that employee is already receiving more than the new minimum salary, it is not necessary to reclassify that employee. However, for those employees whose duties satisfy the exemption requirement, but are receiving less than the new minimum salary, employers will either have to increase their salary to meet the new minimum or reclassify them as non-exempt.
  4. Going forward, the minimum salaries will be automatically adjusted every 3 years. The next salary adjustments are expected to be announced on August 1, 2019, with an effective date of January 1, 2020.
  5. A maximum of 10% of the employee’s salary may be paid in the form of bonuses and incentive payments (including commissions) provided that they are non-discretionary. Discretionary bonuses and incentive payments may not be used.
  6. If an employee’s salary falls below minimum salary level for a quarter (for example, because a non-discretionary bonus was not paid), the employer must either make a catch-up payment or pay overtime.
  7. Hospitality establishments moving managers from salary to hourly have a duty to ensure that such now-hourly employees are not working “off the clock” (such as sending or responding to emails, attending meetings, etc.) and are provided the required, uninterrupted meal breaks. Failure to do so may lead to an FLSA lawsuit.

To learn more about the new overtime rule, you can visit the United States Department of Labor FAQ page. Have you started reviewing the rules? What are your biggest challenges?

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