Final Rule on Overtime:
Is Your Business Ready to Comply?
Since the publishing of this blog post in October 2016, a federal court temporarily blocked the U.S. Department of Labor from enforcing its Final Overtime Rule, meaning employers do not have to be compliant by the December date. The ruling is temporary, pending further reviews by the court, and it’s unknown when the status will change. As more information becomes available, we will update this blog post.
On May 18, 2016, President Barack Obama and Secretary of Labor Thomas Perez announced the publishing of the U.S. Department of Labor’s final rule updating overtime regulations. These updates will provide overtime exemption protections to more than 4 million white-collar workers and are a result of President Obama’s goal to ensure white-collar workers are paid fairly for their hard work.
These overtime regulations, last updated in August 2004, are governed by the Fair Labor Standards Act (FLSA). In addition to overtime pay, the FLSA regulates the payment of the minimum wage, employee recordkeeping and youth employment standards. If a job is governed by the FLSA, it is classified as either exempt (ineligible for overtime pay) or non-exempt (eligible for overtime pay).
Today, before the new rule takes effect, FLSA regulations say that to be exempt from overtime pay, a white-collar worker must:
- Be salaried with a pre-determined or fixed salary
- Be paid at least a specific salary threshold. The standard-level threshold is $455 per week, which equals $23,660 per year. A separate threshold exists for highly compensated employees.
- Primarily perform executive, administrative or professional duties as defined in the U.S. Department of Labor’s regulations. (This clause is commonly known as “the duties test.”)
What are the final rule’s changes?
Effective Dec. 1, 2016, these are the changes to the FLSA exemption requirements, as decided by the final rule:
- The standard-level salary threshold is now $913 per week or $47,476 per year. The highly compensated employees threshold is now $134,004 per year.
- The salary basis test now allows employees to use bonuses, incentive payments and commissions to satisfy up to 10 percent of the new standard salary level.
- A system is now established to ensure the salary levels are updated every three years, beginning Jan. 1, 2020.
How can I make sure I’m in compliance with the final rule?
The U.S. Department of Labor estimates that average annual direct employer costs will be approximately $295 million per year over the first 10 years.
With the new salary threshold changes, it’s important for employers to:
- Consider talking to an accountant to see what steps they can take to reach compliance, while maintaining financial health.
- Set up a system for their employees to track their own time and attendance if they don’t have one already.
- Notify employees who may be reclassified to non-exempt.
- Train managers to answer employee questions regarding the final rule.
Want expert advice?
Feel free to contact us directly when you’re ready to set an appointment.