FLSA Changes to Exempt and Overtime Rules
On May 18th, 2016, the Department of Labor finally issued the anticipated rule regarding overtime for exempt employees. The DOL raised the exempt employee threshold from the previous limit of $23,660 to $47,476. The practical impact is that any employee paid under $47,476 is considered a non-exempt employee and is entitled to overtime pay and all the rights contained under the Fair Labor Standards Act (FLSA).
It is estimated that employers in the United States who are currently classifying workers as exempt with salaries between $23,660 and $47,476 will spend an additional $592.7 million to become compliant with the new laws. The Society for Human Resources Management estimates it may take a long period of time for employers to fully understand and implement changes and that many employers will become non- compliant on the December 1st, 2016 deadline.
Who does it affect?
Exempt Workers who are paid between $23,660 and $47,476
The new rule extends overtime protections to 4.2 million additional workers who are currently classified as exempt from protections under the FLSA for a total of 13.5 million workers covered under FLSA.
What does it change?
Workers who earn as much as $47,476 per year ($913 per week) will have to be paid overtime even if they are classified as a manager or professional and paid on a salary.
Nondiscretionary commissions can now be used to reach the salary threshold with one major caveat – only 10% of the threshold of $47,476 may be met with the payment of commissions. The accrual is quarterly and allows a catch up of 1 pay period after the end of the quarter that will allow the employee’s salary to rise above the threshold.
Failure of the employer to meet the salary threshold with non-discretionary bonuses will require the employer to pay the employee for all hours worked and overtime at 1.5x the normal rate.
When must employers comply with the new rules?
Employers must comply with the new regulations by December 1st, 2016.
The Department of Labor will re-evaluate the salary threshold every three years.
The automatic increase will be based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage census region (the south United States).
Current projections expect the salary threshold to rise to $51,000 at the first update period of January 1, 2020.
Where do the rules take effect?
Because this is a federal rule, this law will be applicable to any employee working in the United States.
Currently, only a handful of states have a state-wide non-exempt salary threshold which is California at $41,600 and New York at $35,100. Since these thresholds are lower than the new federal minimum threshold these state-wide thresholds will no longer apply.
If the states enact a threshold that is higher than the federal minimum, such state thresholds will apply and may require strategic re-classification of employees working in those states.
Why was the rule proposed and passed?
The rationale for increasing the salary threshold is simple: the old minimum salary of $23,660 was found to be at or near the poverty line for a family of four.
The goal is to make it so that any individual making under a certain threshold would be specifically entitled to overtime and FLSA protections.
PGC is committed to ensuring that you are kept up to date with all new laws and regulations that may affect your contractor workforce. For further details on how these changes will affect your workforce, their pay schedule, and the payment of bonuses and commissions, do get in touch.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.