Will new salaried overtime regulations impact your business?

This December brings new changes to the rules around overtime for salaried employees. As you plan for 2017, take the following into account. As always, contact your Lurie advisor with any questions.

Effective December 1, 2016 The Fair Labor Standards Act goes into effect setting new requirements for salaried employees eligible for overtime, making fewer employees exempt from overtime. Following is a list of some of the highlights of the new salaried overtime rule:

The new overtime rule will do the following:

  • Raise the salary threshold indicating eligibility to workers earning less than $913 a week ($47,476 a year) to overtime pay, limiting the number of hours an employee can work without additional compensation to 40 hours.
  • Also updates the total annual compensation level above which most white collar workers will be ineligible for overtime from the current $100,000 to $134,004 a year.
  • Automatically update the salary threshold every three years, based on wage growth over time.
  • Strengthen overtime protections for salaried workers already entitled to overtime.
  • Provide greater clarity for workers and employers.

The new overtime rule will require employers to review the situation for their employees. In response to the new overtime rule, employers can:

  • Pay time-and-a-half for overtime work.
  • Raise workers’ salaries above the new threshold.
  • Limit workers’ hours to 40 per week.
  • Some combination of the above.

The employer is not required to change the employee from salaried to hourly or to change the pay rate for the employee; however, if a salaried employee who generally works a 40 hour week does work more than 40 hours, the employer is required to pay overtime at 1.5 times their hourly rate for the hours worked in excess of 40 hours.

If an employer has an employee who regularly works more than 40 hours per week and is currently exempt, they may want to consider moving the employee’s salary at or above the new salary minimum, $47,476, rather than paying overtime.

The rule allows up to 10 percent of the salary threshold for non-HCE (Highly Compensated Employees) employees to be met by non-discretionary bonuses, incentive pay or commissions, provided these payments are made on at least a quarterly basis.

The total annual compensation level above which most white collar workers will be ineligible for overtime will raise from the current $100,000 to $134,004 per year.

The executive, administrative and professional (“white collar”) exemption has three tests that must be met in order to claim a White Collar Exemption:

  • First, they must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”) rather than, for example on an hourly basis;
  • Second, their salary must meet a minimum salary level, which after the effective date of the Final Rule with be $913 per week ($47,476 annually) for a full-year worker (“salary level test”); and
  • Third, the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “standard duties test”).

For more information on all of the white collar exemptions, see WHD Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees under the Fair Labor Standards Act (FLSA), found at this link: https://www.dol.gov/whd/overtime/fs17a_overview.htm.

This is a brief overview of the new overtime rules for salaried employees. For more detailed information on the Overtime Final Rule, see the following: www.dol.gov/overtime.

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