New federal overtime rules, part one

The Final Overtime Rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees is set to take effect, leaving many executives and employers wondering how it will impact their current business structure.

What does the implementation of the Final Overtime Rule mean?

When the new rules go into effect, the standard salary for white-collar executives will increase. This means all executive, administrative, and professional employees will see an increase by approximately 50 percent, which equates to around $35,568 per year and is over a $10,000 increase from the previous $23,660 annually. In addition to the bump in salary, salaried (exempt) employees will be eligible for overtime based on their required duties.

What does this mean for employers?

For employers, the process begins to identify employees that fall into the exempt category and determine whether they wish to take steps to alter their salary or preserve their exemption status. Employers will need to comply with the new regulation by performing a job duties test. Once the tests are completed, they will be required to make final salary adjustments by January 1st. If, after the job duties test, they decide to transition their employees to non-exempt status, they will then begin being eligible for overtime pay.

What classes of workers may be exempt?

For employers trying to distinguish who could be considered potential exempt workers, they will need to look at employees that fall under one of the classes listed below.

  • Executive employees
  • Administrative employees
  • Creative professionals
  • Learned professionals
  • Outside sales employees
  • Highly compensated employees
  • Computer employees

Once an employer has determined their employee falls into one of these classes, they will need to define their role and responsibilities. There are rules and exceptions in each category, which will help employers make determinations as to whether the employee will fall under the exemption category. In all categories, the employee must meet the required pay of $455 per week or $23,660 annually, as well as the following exemptions listed below.

Executive exemptions

  • Their job duties involve managing work that is recognized as a department in the company.
  • They oversee a minimum of at least two full-time employees.
  • They have the power to promote, hire, or fire employees, or carry significant weight in those decisions.

Administrative exemptions

  • Their duties fall under the realm of management or general business operations.
  • They have the power to make decisions at their discretion or judgment.

Learned professional exemptions

  • They perform duties that require advanced knowledge or are intellectual in nature.
  • They have an area of expertise related to science or learning or one that has required a prolonged period of study.

Creative professional exemptions

  • They perform work duties that require innovation, imagination, or talent in the arts or another creative field.

Computer professional exemptions

  • They have a job as a software engineer, a programmer, a software engineer, or a job that requires similar skills.
  • They perform duties that include consulting with users, system analysis, design or development of software systems, or similar duties.

Outside sales exemptions

  • Their hours are spent primarily in the pursuit of sales or to secure outside contacts.
  • Their job duties are performed regularly outside of the office.

Highly compensated employee exemptions

  • They earn over $100,000 per year for a salary.
  • They perform office duties and no form of manual labor.
  • They perform at least one job duty that would follow under the list of other exemptions.

If employees are not exempt, what will employers need to do?

If an employer has any employee that does not fall under any of the required exemptions, they will need to:

  • Raise the entry-level salary to $684 per week, or $35,568 per year.
  • Raise the annual salary for highly compensated employees to $107, 432.
  • Use discretionary bonuses or incentive payments to satisfy the 10% increase required.

With the new overtime rule, poised to take effect shortly, now is the time for employers to review their employee status and possible exemptions and make the changes needed to be compliant by January.

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