The Department of Labor (DOL) issued the Overtime Final Rule that updates the regulations determining which white-collar, salaried employees are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections. The rule increases the salary threshold below which most white-collar, salaried workers are entitled to overtime compensation.
Employers need to ensure that their classifications and employee compensation practices are in compliance.
The DOL published monumental changes to the overtime rule that will make approximately 4.2 million currently exempt employees eligible for overtime pay.
The updates to the overtime regulations, known as the Final Rule, go into effect on December 1, 2016 and are intended to modernize the current rules in order to make it easier for workers and businesses to understand, and apply to business practices. The Final Rule allows more employees to become eligible for overtime compensation.
The Overtime Final Rule will:
- Raise the salary threshold eligibility level from $455/week to $913 ($47,476 per year).
- Increase the total annual compensation requirement needed to meet the highly compensated employee (HCE) exemption from $100,000 per year to $134,004.
- Not make any changes to the duties test for executive, administrative and professional employees.
- Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
- Any business that employs workers with salaries under the new threshold level should consider its best course of action or face paying thousands in higher wages.
- Employers could be subject to employee lawsuits for failure to comply with the Final Rule.
- For an employee to be classified as FLSA Exempt they must pass both the salary and duties test.
- No business is exempt, regardless of size.
All employers should become familiar with the new rule changes and determine their obligations. The first step is to review your workforce to determine which employees will be impacted (all salary-exempt employees making under $47,476 per year). Once you have identified the exempt employees who will be impacted by the rule, you will need to determine the effect on your business and ultimately make the following changes:
- Classify the impacted exempt employee as non-exempt by:
a) Paying time-and-a half for all overtime hours (those in excess of 40 hours per week)
b) Limiting the workers’ hours to 40 per week and avoid any overtime pay obligations
- Raise the workers’ salary level above the $47,476 threshold; maintaining their exempt status and thereby avoid overtime payments.
- The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisy up to 10 percent of the new standard salary level.
More Information on the Overtime Final Rule
DOL Overtime Final Rule FAQs
In-depth details from the FosterThomas HR Blog
FosterThomas HR is here to help. Please let us know how we can assist you with this final ruling.