by Ron Holmes
Effective December 1, 2016, the “Salary Level Test” for overtime exempt employees is increasing. For an employee to be exempt from the requirement of overtime pay, three tests have to be met:
- The employee must be paid a predetermined and fixed salary (a “Salary Basis Test”);
- The amount of salary paid must meet a minimum specified amount (the “Salary Level Test”); and
- The job duties must primarily include executive, administrative, or professional duties (“EAP Personnel”) as defined by the Fair Labor Standards Act (the “Duties Test”).
Since 2004, the Salary Level Test has been set at $23,660.00 annually for a full year worker. Effective December 1, 2016 the Salary Level Test will increase to $47,476.00 annually for a full year worker. That amount will automatically update every three (3) years based upon the forty percentile (40%) of earnings of full time salaried workers in the Lowest-Wage Census Region.
What does this mean to you?
If your business has relied upon the Salary Level Test (currently $23,660.00 annually), your business will have to start paying overtime to non-EAP Personnel whose salaries are less than $47,476.00 annually. Depending upon your particular business, complying with the new Salary Level Test could result in various personnel issues. For example, if an EAP employee is making only $45,000.00 per annum, the employee he is supervising may receive a salary increase to $47,476.00 if you want to maintain that employee’s overtime exempt status. Of course, such a pay increase may well present a budgetary demand on your business that you simply cannot meet.
You have to be careful in the classification of non-exempt employees as exempt, because the penalties of improper classification can be significant. If all of this is news to you, then I encourage you to make an appointment with your HR Consultant to get informed. If you don’t have an HR Consultant, we can assist you with legal advice and a referral.