Just this week, the Department of Labor (DOL) released its much-anticipated final changes to the overtime regulations under the Fair Labor Standards Act (FLSA). The new guidelines will go into effect on December 1, 2016, so now is the time for covered employers to start preparing.
What has changed?
Most significantly, the new rules change the salary requirements for exempt employees. Under the old rules, employees could be classified as exempt from overtime if they were earning a salary of $455/week (or $23,660/year) and if they performed exempt professional, managerial, executive or administrative duties. Under the new rules, however, employees must earn $913/week (or $47,476/year) – MORE THAN DOUBLE THE PRIOR SALARY LEVEL – to meet the salary component of the exemption. The salary threshold will automatically be updated every three years, so this is a moving target. Note that the final rule did not include a change to the duties test.
Also, the new rule raises the salary threshold level for the highly compensated employee (HCE) exemption from $100,000 to $134,004. To be exempt, a HCE must customarily and regularly perform any one or more of the exempt duties or responsibilities of a professional, managerial, executive or administrative employee and have the primary duty of performing office or non-manual work. Like the standard salary level, the highly compensated employee salary level will increase every three years, beginning Jan. 1, 2020.
What does this mean?
For exempt employees earning at least $913/week, nothing will change. However, employees who are now classified as exempt but who are earning less than $913/week will lose their exempt status as of December 1, 2016. Becoming non-exempt means that these employees will be eligible for overtime pay when working over 40 hours in a work week, which also means that these employees will be required to record their hours worked. For exempt employees who never “punched a clock,” this may be demoralizing, although some may welcome the opportunity to earn overtime.
Note that employers will be able to count non-discretionary bonuses, incentive payments and commissions toward as much as 10% of the salary requirement. However, such payments must be made on at least a quarterly basis.
What should you do?
Step 1: EVALUATION
- Determine which employees will be impacted by these new rules, if anyone.
- Assess the cost of reclassifying these employees as non-exempt or increasing their salaries in accordance with the new guidelines to keep these employees exempt.
- For employees who will be reclassified as non-exempt, no additional costs will result:
- if the newly non-exempt employees do not work overtime. Remember that even if you have a policy that requires all overtime hours be approved in advance, non-exempt employees who work over 40 hours a week must be paid at the time and one-half rate.
- if the hourly rate paid to the newly non-exempt employees is reduced to take into account the need for these employees to work some overtime hours each week.
- Remember to train all newly-exempt employees on your time-keeping procedures.
Employers impacted by these new rules may need to consider covering increased overtime costs by reducing benefits, but this will certainly result in a drop in employee morale.
Step 2: COMMUNICATION
- Notify impacted employees that changes are the result of new rules imposed by the DOL rather than a company decision
- Assure reclassified employees that the changes do reflect the employer’s opinion of their work or the employees’ value to the company
As always, you should contact legal counsel for any specific questions you may have about the applicability of the FLSA to your business, these new rules and how to best implement same.
Florida Board Certified Labor and Employment Attorney
ASSOULINE & BERLOWE, P.A.
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