Effective Dec. 1, the U.S. overtime pay threshold for white collar, salaried employees will increase from $23,660 per year to $47,476 per year, according to the U.S. Department of Labor.
The new threshold will affect about 4.2 million employees in the country, including 370,000 employees in Texas. The DOL estimates that white collar workers will earn an additional $1.2 billion per year as a result of the rule.
After the initial threshold increase, the salary threshold will increase every three years, beginning Jan. 1, 2020.
The salary threshold is being raised based on the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South, according to the DOL. Each update will also increase the threshold to the 40th percentile, which is estimated to be $51,168 in 2020.
"I think for a long time there was a debate about when the ruling will take effect. Many were concerned they [would] have only 30-60 days [to prepare]."—Kim Moore, board chairperson for the Plano Chamber of Commerce
The Highly Compensated Employees salary level is also being increased to the 90th percentile of full-time salaried workers nationally, which raises the level from the current $100,000 per year to $134,004 per year.
The new overtime pay threshold is slightly less than what the DOL originally estimated for 2016, which was $50,440 per year. The DOL also originally proposed updating the threshold every year.
"I think for a long time there was a debate about when the ruling will take effect. Many were concerned they [would] have only 30-60 days [to prepare]," said Kim Moore, board chairperson for the Plano Chamber of Commerce.
Moore said the new rule would mean that by Dec. 1, employers must adjust base salaries of their exempt employees, change exempt employees into non-exempt, keep a close eye on overtime and change the base salaries of highly compensated workers to $134,000 for them to qualify as exempt.
The increase is less than previously proposed $50, 440; however, Moore said employers still need to make major changes in their hiring practices.
There is currently no exemption for small businesses and nonprofit organizations.
In a May 17 email from President Barack Obama, he said employees should either get paid for working more than 40 hours a week or get extra time off to spend with family.
"This is a step in the right direction to strengthen and secure the middle class by raising Americans' wages," Obama said in the email. "When workers have more income, they spend it—often at businesses in their local community—and that helps grow the economy for everyone."
The DOL updated the overtime pay rule after Obama signed a presidential memorandum in 2014 directing the DOL to update its regulations that define which white collar workers are protected under the Fair Labor Standards Act’s overtime rules. The FLSA, which was passed in 1938, establishes overtime and minimum wage standards.
U.S. Rep. Sam Johnson, R-Plano, said this ruling could negatively affect traditional businesses, nonprofit organizations and colleges.
"Adjusting the overtime pay will add an additional burden on employers to come up with ways to meet even more federal regulations," he said. "These adjustments could mean salaried workers being moved to hourly wages, hourly workers seeing their schedules reduced, or consumers paying higher prices."
Kara Nuzback contributed to this article.
