On May 18, 2016, President Obama and U.S. Secretary of Labor Perez announced the publication of the Department of Labor’s final rule updating overtime regulations (the “New Rule”). The New Rule will automatically extend overtime pay protections to over 4 million workers within the first year of its implementation. Because the New Rule is Federal law, it applies equally to all states, including Illinois. The New Rule becomes effective on December 1, 2016.
What’s In The New Rule?
The New Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from overtime payment requirements in the event that they are assigned to work more than 40 hours in a week. The following are the key provisions of the New Rule:
- It sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
- It sets the total annual compensation requirement for highly compensated employees (“HCE”), subject to a minimal duties test, to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
- It establishes a mechanism for automatically updating the salary and compensation levels every three years, to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the New Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
For Illinois employers, the New Rule means the following:
- It initially increases the standard salary level for exempt employees from $455 to $913 per week. This means that if you have categorized an employee as an Executive, Administrative, or Professional worker, and they are paid less than $913 per week, and they work more than 40 hours in a week, then their pay is subject to overtime compensation for every hour that they work in excess of 40 hours per week.
- It initially increases the HCE total annual compensation requirement from $100,000 to $134,004 per year. Future automatic increases to the HCE total annual compensation requirement will occur every three years, beginning on January 1, 2020. This means, for example, that workers in the computer software industry who are properly categorized as HCE, must be compensated at the rate of $134,004 per year, and if they aren’t and they work more than 40 hours in a week, then their pay is subject to overtime compensation for every hour that they work in excess of 40 hours per week.
Compliance with the New Rule is important, because an employer who willfully or repeatedly violates the overtime pay requirements, or who misclassifies its employees to avoid paying overtime, may be subject to civil penalties of up to $1,000 per violation.
The lawyers at Winick & Gallaher, P.C. can review your employee classifications before the New Rule goes into effect, and advise you on options for restructuring wages for your employees, so that your business can cost-effectively meet the requirements of the New Rule.