The U.S. Department of Labor (DOL) has made a final ruling, as of May 18, 2016, establishing a new rule regarding overtime pay. The final ruling has doubled the eligibility rate since the last ruling in 2004. Employers must comply with the new overtime rule by December 1, 2016.
Under FLSA regulations, employees are required to be paid time and a half for any overtime work past 40 hours. However, there has never been in place “white collar exemptions” for workers in executive, administrative, professional, outside sales, computer technicians, and highly compensated individuals. Currently, the salary threshold for salaried-exempt employees is $23,660 a year or $455 per week. The DOL final ruling will set the salary threshold at $47,476 per year or $913 week for “white collar” employees. For the highly compensated employee (HCE) the current salary threshold is $100,000. With the final ruling the salary threshold will increase to #134,004. In order to keep up with the times, the salary threshold will continue to be updated and increased every three years. Employers will be allowed to account for 10% of employee nondiscretionary bonuses and incentive payments of new salary threshold. These bonuses or incentive payments must be paid quarterly, with one pay period to catch up, or one year to catch up for HCE. To qualify for white collar exemption, employees must satisfy two tests: the salary test and the duties test.
There are a few options for employers to comply with the new rule. One option for employers is giving employees who are close to the salary threshold a raise. However, most employers, especially in small businesses, will not be able to give just a straight-up raise. In this case, employers can look at lowering hourly wage for employees, keeping in mind overtime pay. For example, take an employee with a salary at $45,760 ($880 a week). The employer could lower hourly wage to $16 per hour, accounting for $240 of overtime, still earning $880 a week. If an employer were to consider this option, they would also need to consider how this could affect the employee if the 10 hours of overtime is not offered. Finally, the employer could cut or reduce benefits. In any of these options, opportunities and risks must be considered.
To minimize any compliance risks, employers should implement prevention strategies. Employers should review employee’s job descriptions to make sure they are accurate. If there are no job descriptions in place, it would be in the employer’s best interest to create them. This allows the employer to assess job production and possibly consolidate tasks into fewer positions. While creating job descriptions or reviewing them, this also allows an employer to review the job duties to evaluate if employee falls within the “white collar exemption” guidelines. In regards to overtime, employers should determine whether there is properly counted overtime in place for non-exempt employees based on FLSA and state laws.
How do employers prepare for this change? First, get started now! Look at which employees should get an increase in salary to meet the new minimum or prepare to adjust wages and pay non-exempt employees. Assess all benefits. Check to see if all benefits can apply to exempt and non-exempt or adjust to offer different benefits to different groups. Review overtime policies and time tracking. Time tracking overtime is crucial for staying within the DOL overtime ruling. Finally, analyze workflows within the company.
If you have any questions or would like to discuss some of the points above please feel free to reach out to us.