Overtime regulations remain a mystery to so many business owners. Determining who’s in, who’s out by exemptions and pay rate requires a lot more than guesswork to control the major impact on your business and labor costs. Most companies affected by these changes will make significantly more workers eligible for overtime.
On May 18, 2016, the United States Department of Labor (DOL) published details regarding changes to the Fair Labor Standards Act (FLSA) overtime rules and organizations were given until December 1, 2016 to comply.
The changes to overtime regulations will make an additional 4.2 million workers or more eligible for overtime.
Overtime Regulations — Salary Test Thresholds
The job duties component of overtime eligibility will remain the same, but the thresholds for the salary tests have changed significantly. White-collar exemptions will go from $455 per week, or $23,660 per year under the 2004 overtime rule, to $913 per week, or $47,476 per year, effective December 1, 2016.
White Collar Exemptions
|Old Salary Thresholds||New Salary Thresholds|
|$455 / week||$913 per week|
|$23,660 per year||$47,476 per year|
Exempt employees are determined by their duties, salary level, and how they are paid that salary. To qualify for certain exemptions from the FLSA minimum wage and overtime requirements under the new rules (and as of December 1), employees must:
- Be employed in an executive, administrative, or professional capacity, or in the capacity of outside salesperson
- Earn more than $913 per week (or $47,476 annually)
- Be paid on a salary basis
The final rule did not modify the duties component of the exemptions, but the standard salary level threshold was reduced from the proposed $50,440.
The salary threshold for overtime exemptions was set at the 40th percentile, or $47,476 per year ($913 per week). This is an increase from $23,660 per year ($455 per week).The new rule also allows employers to use non-discretionary bonuses and incentive payments to satisfy up to 10% of the salary in the standard salary test. That is an amount equal to $91.30 per week or $4,747.60 per year.
Also, there has been an increase in the highly compensated employee (HCE) exemption threshold to the 90th percentile of annual earnings for full-time salaried workers. Currently, employees who perform certain duties and earn more than $100,000 annually are exempt. The proposal increases the annual compensation level to $134,004 per year.
Under the new overtime regulation, the DOL also established automatic increases every three years to the two salary thresholds, beginning January 1, 2020.
What Does It Mean?
This means that organizations will have to develop “best practices” in this area – especially since many businesses already struggle with overtime eligibility, as well as overtime costs. The rule affects wage and hour compliance, for numerous businesses, and significantly impacts labor costs.
Assess the potential impact of these changes to your business, and make plans to improve and manage overtime.
Areas of your business that will be affected include:
- Employee classification
- Employee scheduling
- Compliance reporting
- Work Policies (such as time tracking, mobile devices, etc.)
Clarify wage and hour compliance to help minimize the chances of facing costly complaints and penalties.
Listen to Nancy explain these changes on the radio show Financial Focus.