How the New Overtime Rules Affect You

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24 May 2016

What do the new overtime rules from the U.S. Department of Labor mean for your organization? The simple answer is that your organization likely has exempt employees who no longer qualify for classification as an exempt employee and you need to either a) increase his/her salary to meet the new salary threshold, or b) pay the employee overtime for hours actually worked beyond 40 hours in a workweek and/or put in place mechanisms to limit the number of hours such employees work to minimize required overtime payments.

Last week, the U.S. Department of Labor issued its long-awaited final revisions to the Fair Labor Standards Act (“FLSA”) “white collar” exemptions. These white collar exemptions exempt employees from receiving overtime pay if the employee’s position meets both the duties test and salary requirement outlined in the federal regulations. The new regulations make significant changes to the salary threshold. This salary floor must be met in order to classify an employee as exempt and avoid being required to pay an employee overtime.

Here is what you need to know:

  • The new minimum salary requirement under federal law is $913 per week or $47,476 annually, which is approximately double the current threshold of $455 per week or $23,660 annually. This new amount reflects the 40th percentile of full-time, salaried employee earnings in the lowest wage census region, which is currently the South.
  • The “highly compensated employees” exemption the salary threshold increases from $100,000 to $134,004. This amount reflects the 90th percentile of all full-time workers’ salaries nationally.
  • Employers may now include non-discretionary bonuses, incentive payments, and commissions when calculating an employee’s salary, so long as such payments are paid at least quarterly. The new regulations also include a provision allowing an employer to make a “catch-up” payment each quarter if an employee’s average weekly salary falls below the minimum. However, these other payments may only be used to satisfy a maximum of 10% of the salary requirement.
  • The minimum salary requirements will be modified every three years, beginning January 1, 2020. Specifically, the threshold will change every three years to the 40th wage percentile earnings for full-time salaried workers in the country’s lowest-wage region.
  • Certain employees continue to be exempt from the salary threshold requirement, including teachers, doctors, lawyers, and commissioned sales employees.
  • The new regulations do not make any changes to the “duties” requirements for the “white collar” exemptions.
  • The new regulations go into effect December 1, 2016, providing employers a six month window to make the necessary adjusts.

At a minimum, employers should conduct a review of the salaries of its employees who are classified as exempt. If there are exempt employees in your organization who make less than $47,476 annually, you must either increase their salaries or modify your payroll practices so that such employees track the hours worked and receive overtime pay for hours worked in excess of 40 hours per workweek. If you opt to increase salaries, and intend to use non-discretionary bonuses, incentive payments or commissions to satisfy up to 10% of the salary requirement, you should prepare and/or modify your policies to address such payments, how they are earned, and when they are paid.

As a reminder, if you operate in a state where the minimum salary requirement under state law is higher than federal law or overtime must be paid after an amount of hours worked other than more than 40 hours in a workweek and such payments are more beneficial to the employee, you must comply with that state’s wage and overtime laws.

If you have any questions regarding the impact these new regulations have on your organization or need help making adjustments to your policies or practices, please contact us.

Michelle B. Ferguson, an employment lawyer at Ireland Stapleton Pryor & Pascoe, PC, focuses on “preventative employment law.” Michelle works with private and public employers to be proactive in identifying and solving issues before an employment claim is filed. She also provides training to employers and their employees on all matters of employment law.

Disclaimer:
What is written here is intended as general information only and is not to be construed as legal advice nor does it create an attorney/client relationship. If legal advice is needed, you should consult an attorney.


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