If your organization hasn’t already taken time to look into the recent changes to the Fair Labor Standards Act and consider options, now is the time.
This spring (May 2016) the United States Department of Labor revised overtime regulations for the first time since 2004. On May 18, 2016 the Fair Labor Standards Act’s (FLSA) “white collar” overtime exemptions. The new regulations, effective December 1, 2016, increase the salary threshold required to qualify for overtime exemption from $455 per week (or $23,600 per year) to $913 per week (or $47,476 per year). This Final Rule updates the salary level required for exemption to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of overtime-protected employees.
Unless employers take action to modify employees’ exempt status, this update extends the right to overtime pay to over 4 million workers who are currently exempt. It also strengthens existing overtime protections for 5.7 million additional white collar salaried workers and 3.2 million salaried blue collar workers whose entitlement to overtime pay will no longer rely on the application of the duties test.
How will your business be affected? Read on…
Key Provisions of the Final Rule
The Final Rule focuses on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
- 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);
- 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
- 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 Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
What should employers do right away?
- Complete a review of all positions/employees who are currently paid a standard salary to determine if they meet the duties test for exempt employees.
- Determine whether or not they meet the new salary basis ($913 per week).
- Estimate how much overtime they typically work per week and review your labor budget.
- Decide, based on the factors above, what course of action might be most appropriate for your business.
- Note: be careful to ensure that employees who are in substantially similar job roles (although with different titles, or in different departments) are not classified differently – this can prompt claims of workplace discrimination.
For detailed information on strategies and options for maintaining compliance with the new rule and to craft a custom plan for your organization, contact your HR strategist, Niki Ramirez.
Source: U.S. Department of Labor. The preceding information is not intended to constitute legal advice.
About the author: Niki Ramirez is a seasoned professional consultant and coach with a knack for engaging business leaders. She has a successful track record partnering with a wide variety of organizations to analyze current human resources and business operations with the objective of designing cost-effective HR, training, and employee relations programs that help every organizations exceed their goals.
Maybe most importantly, Niki is the proud momma to three strikingly intelligent, gorgeous, funny kids. She loves to horseback ride and get outside to hike and explore the world every spare minute that she has.