How New Overtime Rules May Impact You
The much anticipated final new rules on the Fair Labor Standards Act (FLSA) overtime standards[1] were released by the Department of Labor last week, and whether you are an employee or employer, you may be wondering how the new rules governing overtime pay might impact you.
The rules are designed to ensure that workers are paid a reasonable wage for the hours they work, including overtime pay for lower income workers. Unless exempt, employees covered by the Act must receive overtime pay for any hours worked beyond 40 in a workweek at a rate of at least time and one-half their regular pay.
What does being exempt mean?
Exempt positions typically fall under some type of management or professional category and employees are paid a salary that is not dependent precisely on the hours worked. As a result, exempt employees are often not required to track their hours, but they are also not eligible for overtime pay.
"Under the new rule, the salary floor for FLSA exemption has been raised to $913 per week or $47,476 per year. "
There are two criteria that must be met to classify a job as exempt. First, the job must pass appropriate work responsibility tests. As a rule of thumb, exempt employees tend to perform relatively high-level duties with respect to the company's overall operations. Next, the employee must earn a salary above a certain minimum. Until the recent rule change, under the FLSA the minimum salary floor was $455 per week, or $23,660 per year. In other words, in the past, if you did not earn at least $23,660 per year, you could not be classified as an exempt employee even if your job responsibilities otherwise justified it.
If you make above the salary floor and your job responsibilities pass the tests for exemption, you can be classified as exempt, and are not eligible for overtime pay, guaranteed meal or rest breaks, and the other protections under the FLSA.
Understanding the Recent Change
Under the new rule, the salary floor for FLSA exemption has been raised to $913 per week or $47,476 per year. This essentially doubles the prior floor. For many employees, this will likely mean their jobs will be re-classified as non-exempt. The change is expected to extend overtime pay protections to over 4 million workers. The salary level will also be re-evaluated every 3 years and adjusted as necessary which means employers should anticipate the floor will increase again in the future. The effective date is December 1, 2016, so employers must ensure compliance in a little more than six months.
There are a couple ways that employers might address the rule. Many will simply re-classify employees who have pay that falls shy of the $47,476 threshold as non-exempt, choosing to pay appropriate overtime wages, as well as ensure meal and rest breaks as required under the Act.
"The change is expected to extend overtime pay protections to over 4 million workers."
Other employers may examine current job positions and specific employee salaries that are on the cusp of the new threshold and simply adjust those employees' pay upward to meet the increased salary requirement. Once pay is above the salary floor, and the job passes the other exemption tests, the employee can continue to be classified as exempt. Employers may elect to continue to pay non-exempt workers on a salary basis, but they must now track hours to ensure compliance with the overtime rules.
Opponents of this change cite an increase the administrative burden on many small businesses and non-profits with large number of employees previously classified as exempt. Timekeeping systems must now be in place for many more workers, and overall labor costs will likely go up as a result of increased overtime pay. Proponents of the change, however, hail it as protection for employees -- particularly lower wage exempt managers who may currently be required to cover the open shifts of sick employees, work overtime to fill in during job vacancies, or do other administrative duties in their "off hours."
Employers should evaluate how they will respond to the new rules as quickly as possible so that they can communicate with their employees, and employees who believe this impacts them should discuss it proactively with their managers.
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Footnotes:
[1] US Department Of Labor. www.dol.gov/whd/overtime/final2016.
See Disclosures.