New Overtime Regulations Released

The DOL has released the new overtime regulations. The new salary minimum for exempt employees is now $47,476 per year. There will be automatic increases to the salary level every 3 years. There are no changes to the Duties Test. These changes are effective December 1, 2016.

AE’s June 2016 Newsletter Article

The Department of Labor released the final rule regarding changes to the overtime exemptions under the Fair Labor Standards Act on May 18, 2016. The new rule, in effect, doubles the minimum threshold of what an employee needs to earn to be eligible for an exemption from overtime. The rule takes effect on December 1, 2016, giving employers much more than the required 60 days to come into compliance.

The key changes in the new regulation are as follows:

• Minimum salary threshold to meet the most common of the exempt categories (Administrative, Professional and Executive) will increase from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). This weekly minimum is slightly lower than that in the proposed rule. The minimum hourly rate for the Computer exemption is unchanged at $27.63.
• The minimum threshold is set to increase every three years, in order to maintain it at a level that represents the 40th percentile of full time salaried workers in the lowest wage census region (which is currently the South).
• The effective date is December 1, 2016. Employers have about six months to review their current positions and bring those that do not meet the $913 per week minimum into compliance. This is also an opportunity to review positions that, regardless of pay, may not meet the duties test for exempt status. Those positions can also be re-classified in this process.
• The duties tests for exempt positions are unchanged in the final rule.
• The threshold for the Highly Compensated Employee (HCE) exemption will be $134,004 annually under the new rule. This number represents the 90th percentile of full time salaries workers nationwide.
• Bonuses may make up no more than 10% of the minimum threshold, but those bonuses must be non-discretionary and paid at least quarterly. Note that this is a somewhat risky strategy to use, as if for some reason the employee falls under the threshold they will be subject to overtime.

Total workers qualifying for overtime has dropped from 62% of in 1975, to only 7% today. This new rule will result in 4.2 million more employees nationwide to be eligible to receive overtime pay, according to White House estimates.

A change from exempt to non-exempt status is probably a benefit for employees, if their hourly rate is equivalent to their salary rate. However, the employer may choose to limit or eliminate overtime hours, or reduce other benefits to cover additional overtime costs under this new rule.

And even if the change from exempt to non-exempt is a benefit for an employee, it often is not seen that way. The new requirement to track their time is sometimes perceived as a demotion. The loss of flexibility in when and where they do their job will cause both employer and employee to have to change some habits. It is important to explain the regulation changes to the employees making this switch, and also to make it clear that this change does not mean that the company sees their contributions as any less valuable.

It is important to note that any position in your organization can be paid hourly, and subject to overtime, without violating any FLSA rules. A Manager, for example, does not need to be salaried exempt just because he or she is a Manager. Further, it is a good practice to default to a non-exempt classification for any position and then see if it qualifies as exempt under one of the classifications. In other words, exempt status should be the exception, not the rule. If there is any question of the eligibility for exempt status, best practice is to keep the position non-exempt and subject to overtime.

The new regulations may also affect companies’ ability to allow remote work Non-exempt employees working at home or otherwise away from the office present enough timekeeping difficulties, that most companies do not permit it.

Associated Employers can assist in compliance with this new rule with our FLSA Review service. One of our HR Professionals will work directly with you to analyze your affected positions and make recommendations on how your company can minimize the risk of non-compliance. We can also assist in establishing an hourly rate that may minimize your company’s exposure to additional payroll costs due to the new rule.

In addition, we have placed helpful articles on our website at www.associatedemployers.org/hr/new-flsa-rule to help you navigate this new rule.

Written By: Sandra Villegas