Have you heard the latest? That the federal government has issued new rules when it comes to overtime exemptions? Are you wondering what that means? How it affects you? You’re not alone! And, we’re here to help!
To do that, we first have to address a myth about compensating your staff and get a few definitions out of the way.
Myth: I pay a salary so I do not have to pay overtime.
This couldn’t be more false. The method of compensation has no bearing on overtime requirements. Employers may pay their employees in a variety of ways – salary, hourly, piece rate, per day, commission – and the requirement to pay overtime may still exist.
Definition: Non-Exempt Employees
Non-exempt employees receive overtime pay at all times, when it is worked, regardless of their method of compensation; they are not exempt from the overtime pay requirements and calculations.
Definition: Exempt Employees
Exempt employees do not receive overtime pay; they are exempt from the overtime pay requirements. These are the only employees who do not receive overtime. To qualify, there are specific job duties tests put forth by the Fair Labor Standards Act that must be met. An inability to pass those tests means the employees cannot be classified as exempt, and, therefore, they are entitled to receive overtime pay.
The Department of Labor’s (DOL) regulations require exempt employees to be paid on a salary basis. In addition, the amount of the salary paid must meet a minimum specified amount. In 2004, the DOL set the salary threshold at $455 per week or $23,660 per year.
Ok, now that we got that all out of the way, what’s new?
As of the issuing of their final rule, the minimum salary for exempt employees is increasing. Here are the key provisions of the new rule:
- Sets the standard salary level at $913 per week or $47,476 annually;
- Sets the total annual compensation requirement for “highly compensated employees” subject to a minimal duties test to $134,004;
- 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; and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years.
The effective date of the final rule is December 1, 2016. Future automatic updates to those salary thresholds will occur every three years, beginning on January 1, 2020.
What’s Next for You?
Here’s what you need to do to get your house in order, depending on your current situation:
- If you have erroneously classified employees as exempt, have neglected to pay overtime, and they, in fact, do not meet the exemption duties test, you must re-classify them as non-exempt, rectify the past in which overtime should have been paid and wasn’t, and then pay overtime going forward when it is worked.
- If you have properly classified your employees as exempt and they are not making the new salary requirement, you must increase their salary on or before December 1st of this year in order to keep them classified as exempt.
- If you have properly classified your employees as exempt and you do not wish to pay them the increased salary requirements, you must re-classify them as non-exempt and pay them overtime when it is worked going forward.
- If you have properly classified your employees as exempt and their salary is or exceeds the new requirement, then no action is necessary.
- For any future hires that you wish to consider classifying as exempt, you must ensure they meet the duties test and you must pay them in accordance with the new salary requirements.
The method (hourly, salary, commission, etc.) with which an employer compensates employees has no bearing on overtime requirements. There are myriad of things to comply with and consider. We find that nearly 95% or more of employees in the dental field do not qualify for the exempt classification. We have only scratched the surface on this issue. Be sure to work with an HR professional before implementing exemption positions at your practice.
For More, Contact NDA member, Gayle Christensen.
Gayle owns Christensen Dental Consulting, & is an Independent HR Certified Consultant with Bent Ericksen & Associates.