THE U.S. Department of Labor has issued its long-awaited proposed changes to the nation’s overtime rules for American workers, proposing to increase the threshold for exempt status by more than 50% to just over $55,000. Under DOL rules, workers who are exempt from overtime rules – typically managers, executives and certain administrators – must make at least the threshold amount, which is currently $35,568. If the new threshold goes into effect, employers will have a choice to either raise the pay of their currently exempt staff to the new threshold (or above) or change those workers to non-exempt, meaning they must be paid overtime wages (typically time and a half) if they work overtime. It’s rumored this proposal is on a fast track and that it could become permanent in the next few months, giving employers a short window to make changes.
WHAT’S CHANGING
- The exempt salary threshold will increase to $1,059 per week (or $55,068 per year). That’s up from the current $684 a week, or $35,568 a year.
- The exempt salary threshold will automatically increase every three years based on cost of living increases.
- The proposal will raise the threshold for the “highly compensated employee” exemption to $143,988 (from the current threshold of $107,432).
Title alone does not designate someone as “exempt.” There is a two-pronged test for classifying a worker as exempt from overtime pay:
- Their salary, which will have to be $55,068 per year, under the rule.
- The duties test, which outlines exactly what someone’s duties must be in order to qualify for exempt status (see box in the column below).
THE DUTIES TEST
A worker must have certain duties to be an exempt employee. The three main exemptions are:
Executive exemption – These employees must manage a department or division, direct the work of at least two workers and have the authority to hire and fire.
Administrative exemption – Primary duties must be office or non-manual work related to the management or general business operations, and the employee’s duties must include exercising independent judgment on significant issues.
Professional exemption – The employee’s primary duty must be the performance of work requiring advanced knowledge, predominantly intellectual in character and which requires the consistent exercise of discretion and judgment.