Tax & Accounting Blog

Department of Labor Releases New Overtime Wage Thresholds

Accounting Firms, CS Professional Suite Payroll Solutions, Payroll June 7, 2016

On May 17, 2016, President Obama announced new wage thresholds for nonexempt wage earners to be subject to overtime. The old limits of $23,660 and $100,000 for high earner test have been in place since August of 2004.

The new wage thresholds become effective on December 1, 2016. The final regulation should be available on May 23, 2016, and the preview of the final ruling is available on the Federal Register website.

The salary threshold will become $47,476 a year, or $913 per week. The tests remain the same and the categories stay the same—Executive, Professional and Administrative. The Fair Labor Standards Act (FLSA) website provides more information, and will be updated shortly. 

The highly compensated employee threshold will become $134,004. Again, the test remains the same. Most—but not all—workers earning above $134,004 will remain exempt from overtime requirements.

Furthermore, these limits will now reset every three years. This is to maintain the 40th percentile of full-time salaried workers in the lowest income region of the U.S. (currently the South). For reference purposes, the expected thresholds as of January 1, 2020, will become more than $51,000.

One item to note is that bonuses and incentive payments—including commissions—will count toward up to 10 percent of the new salary levels. The amounts must be paid at least quarterly (or more frequently) and can be a “catch up” payment on the first pay period of the following quarter. This will assuredly cause more complicated calculations for employers.

Make sure to keep an eye out—in the near future, the Department of Labor will release three technical guidance documents designed to help private employers, non-profit employers and institutions of higher education come into compliance with the new rule.