Will the New Federal Overtime Regulations Put More Money in Your Pocket?
A change to the federal overtime regulations that will come into play at the end of 2016 will likely have a significant impact on workers. The U.S. Department of Labor recently promulgated new overtime regulations which increase the national overtime salary threshold, thereby dramatically increasing the number of workers eligible for overtime. While hourly-paid workers are always eligible to receive overtime pay, salaried workers who make less than the salary cap are eligible to receive overtime wages as well if their job duties do not fall under certain exemptions. Prior to the regulatory change, the salary cap was set at $23,660 per year, but the new threshold will be $47,476 per year, more than double the previous limit. In addition, the salary threshold must be updated every three years to reflect the 40th percentile of earnings in the region with the lowest wages. Under these new regulations, many workers will be able to earn overtime premiums for the first time in their careers and as a direct result, millions of American employees will receive a significant boost in their compensation.
The new regulations changed the salary threshold but did not modify the job duty criteria for determining whether a worker is exempt. Workers who are exempt from overtime pay remain those who are paid on a salary basis and are employed in a bona fide executive, administrative, or professional capacity; the Department of Labor has provided definitions of those overtime exemptions here.
The new overtime rule will effectively increase compensation for many employees whose salaries are between the old and new thresholds. Supporters of the change say that it will result in either bigger paychecks or more leisure time for workers as businesses become more reluctant to require more than 40 hours of work per week. The Department of Labor contends that the new rule will especially benefit a significant number of women, workers without a college degree, workers under age 35, Latinos, and African-Americans because these workers tend to make more than the previous threshold of $23,660 but less than the new threshold of $47,476.
On the other hand, some business owners have expressed concern about these new regulations and the prospect of paying additional overtime wages. To reduce the cost of overtime in the face of the new regulations, a business might strictly limit employees to working 40 hours a week. Or employers may raise the salaries of employees whose duties meet the exemption test to just above the new threshold to ensure that they are not eligible for overtime pay.
While the ultimate impact of the new regulations will not be known until December, advocates for workers believe this is a step in the right direction for fair wages and will be advantageous for millions of working Americans.
**Many thanks to our amazing JFCS summer intern Max Swan for his assistance in drafting this blog post.