On May 18, 2016, the Department of Labor released its Final Rule changing the salary minimum to qualify for overtime exemptions. As we all know, with some exceptions, employees who work more than 40 hours per week must be paid 1.5 times their hourly rate for each hour they work past the 40-hour threshold.
What have changed are the exemptions an employer will be able to rely on to control a company’s overtime exposure and expenses with respect to salaried employees. The new Rule raises, substantially, the exemption threshold for a wide cross-section of employees, classified broadly as ‘white-collar’ workers.
These include salaried employees in the executive, administrative and professional services spaces, as defined by the FLSA, and encompass many employees classified as managers, sales representatives, secretaries, and more. A little over 4 million workers will be subject to this new ruling and all employers will be required to abide by this new Rule by December 1, 2016, or face the possibility of legal action and fines.
What does this mean?
In the past, an employer could exempt white collar salaried employees from OT pay if they earned more than $23,660 annually (or $455 per week). That’s about $11.35 / hour for a 40-hour work week. This has more than doubled to $47,476 annually (or $913 per week). Any employee with an annual salary below this new threshold may now make overtime claims for time worked past 40 hours per week. The new overtime rule applies to highly compensated employees as well, raising the floor for this exemption to $134,004 (from the current level of $100,000).
Additionally, a mechanism to automatically adjust salary levels to meet the threshold will be implemented. This upward-adjustment will be based upon a percentile analysis of census data, and is set to trigger every three years.
As an employer, what does this mean for you and your company?
Several critical factors need to be examined across your company and workforce to prepare for the upcoming changes. These should include, but are not limited to:
- How employees are classified
- The number of hours employees currently work
- The assigned job duties for employees
- How time is tracked
- How compensation is paid
OK, now what?
With a December 1, 2016 deadline, strategy needs to be set now, to ensure timely compliance by later this year. These strategies can take many forms, and there is no silver-bullet plan that balances company profits with employee satisfaction and compliance with the law. Each company is different; each corporate culture is different; and company shareholder expectations all have to be taken into account when formulating an action plan to address these changes. This is not going to be a simple ‘flip of a switch’ in your company’s human resources policy book. You will need to approach this situation taking many factors into account, such as: employee morale; profit margins; outside costs; and more.
How can my lawyer help?
Legal counsel should be involved in the development of a strategy to ensure compliance with these rules. An analysis of your business plan, budgets, policies and procedures, number and classification of employees will all need to be a part of the compliance rollout plan, and potentially innovative maneuvers can help to satisfy the requirements in a more cost-effective manner.. Ensure your company is operating within the parameters or current and proposed employment law by relying on your trusted counsel.
If you are an employer, business owner, or HR professional and have questions about this new Rule and what should be done, please contact D. Porpoise Evans at 305-370-3277 or firstname.lastname@example.org