New Overtime Ruling From The Department Of Labor
The US Department of Labor (DOL) released its final rule that will raise the white collar overtime exemption threshold under the Fair Labor Standards Act (FLSA) – a decision that could affect about 7.4 million organizations.
The Final Rule guarantees a minimum wage for all hours worked and limits to 40 hours per week the number of hours an employee can work without additional compensation.
- Effective Start Date – The effective start date of the Final Rule will be December 1, 2016.
- Salary Threshold – The salary level threshold for full-time exempt “white collar” workers is raised to $913 per week; $47,476 annually.
- Highly Compensated Employee Threshold – The exempt highly compensated employees (HCEs) threshold for full-time salaried workers will be $134,004 annually.
- Future Updates – There will now be an automatic update done every three years (1) The minimum salary level to the 40th percentile of full-time salaried workers in the lowest income region of the country; and (2) The HCE threshold to the 90th percentile of full-time salaried workers nationally.
- Discretionary Bonuses – The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
Workers not subject to a salary level test include:
- Academic Administrative Personnel
- Outside Sales Workers
In addition, the Department of Labor expects many employers will adjust base wages downward to some degree so that even after paying the overtime premium, overall pay and hours of work for many employees will be relatively minimally impacted.
How To Avoid Becoming A Target Of An Employee Lawsuit Or A DOL Audit?
As a result of this new regulation, organizations will need to start tracking hours for exempt salaried employees that are at or below the new threshold; therefore, if your organization is not currently tracking the number of hours its salaried employees work, it should do so immediately.
- Start Paying Overtime: As a result of this proposed regulation, employers would have to pay their salaried employees that are below the new threshold for any overtime hours worked.
- Create An Audit trail: If an employee reports your organization for not following this regulation, the DOL (Department of Labor) will audit your business.
- Get A Time Clock Installed At Your Business: Effective immediately, you should start tracking an employee’s time as the amount of hours they work will directly impact their compensation.
Immediate Steps To Take
- Identify employees making less than salary threshold (see above).
- Determine the actual hours these employees work per week.
- Determine the appropriate hourly rate for affected employees.
- Calculate a new hourly rate for those salaried employees.,
- Prepare to have a conversation with your employees.
- Begin tracking reclassified employees’ hours.
Executive Summary: The Fair Labor Standards Act (FLSA), the federal wage law, requires employees to be paid at least the federal minimum wage and overtime for any time worked in excess of 40 hours in a workweek. In addition, the FLSA provides strict record-keeping requirements for employees to track their working hours. There are employees, however, that are “exempt” from the FLSA’s minimum wage, overtime and record-keeping requirements.
Before making any type of decision, ask yourself the following questions:
- Is my organization affected?
- Which employees are affected?
- What do I need to do to prepare my organization (to avoid lawsuits and/or DOL audit)?
- How can I control my costs as a result of this new regulation?
Frequently Asked Questions
What is the purpose of the new overtime ruling from the Department of Labor?
The new overtime ruling from the Department of Labor (DOL) aims to raise the white collar overtime exemption threshold under the Fair Labor Standards Act (FLSA), ensuring a minimum wage for all hours worked and limiting the hours an employee can work without additional compensation to 40 hours per week.
When will the Final Rule be effective?
The effective start date of the Final Rule is December 1, 2016.
How often will these thresholds be updated in the future?
The thresholds will be updated automatically every three years. The minimum salary level will be adjusted to the 40th percentile of full-time salaried workers in the lowest income region of the country, and the HCE threshold will be adjusted to the 90th percentile of full-time salaried workers nationally.
How can organizations prepare to ensure compliance with this new ruling and avoid potential lawsuits or DOL audits?
Organizations should start tracking hours for exempt salaried employees that are at or below the new threshold. They should also begin paying overtime to salaried employees below the threshold for any overtime hours worked, create an audit trail, install a time clock to track employee hours, and take immediate steps such as identifying affected employees, calculating new hourly rates, and preparing to discuss changes with the employees.