The Department of Labor’s (U.S. DOL) changes to overtime eligibility have been approved and are scheduled for a December 1, 2016 implementation. The waiting is over and all employers need to immediately prepare. No one will be able to avoid this.
I have outlined below a summary of the changes that apply to both private and public sector employees. Remember, this is a summary and does not constitute a complete review of all the changes to the rules nor should it be considered legal advice.
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
- Sets the salary threshold under which employees would be nonexempt—required to receive overtime pay (regular hourly rate x 1.5 for all hours worked beyond 40 hours per week) at $913 per week or $47,476 annually for a full-year worker, more than doubling the salary threshold from the current level of $23,660.
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test, to $134,004; and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years.
- Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Earning above the $47,476 annual ($913 per week) salary level do not automatically classify an employee as exempt from mandatory overtime pay, as the duties test still comes into play.
This is a significant change to the law and all employers should review their plans now, before the December 1, 2016 implementation. Don’t wait, as changes will be complex and contain plenty of pitfalls.
To avoid problems with existing exempt workers currently being paid less than the new threshold, your options include:
- Reclassify affected workers as nonexempt, or
- Increase the employees’ salaries to at least $47,476, or
- Reduce the hours of these workers, or
- Pay a lower hourly rate so that, when multiplied by time-and-one half, weekly compensation remains unchanged
As I have noted in previous posts, none of these steps are ideal and are likely to result in employee relation issues and increased payroll costs. To make matters worse, the DOL has stepped up enforcement, expecting to dole of the law out fines, attorney fees and back pay for violations.
Rules for State and Local Governments:
The FLSA contains several provisions unique to state and local governments, including compensatory time off, under certain provisions.
- Comp Time: State or local government agencies may arrange for their employees to earn comp time instead of cash payment for overtime hours.
- Fire and police small-agency exemption: The FLSA also provides an exemption from overtime protection for fire protection or law enforcement employees, if they are employed by an agency that employs fewer than five fire protection or law enforcement employees, respectively.
- Work periods rather than workweeks for fire protection or law enforcement employees: Employees engaged in fire protections or law enforcement may be paid overtime on a “work week period” basis, rather than the usual 40-hour work week of the FLSA.
Not Affected by Changes:
Many employees won’t be affected by the final rule:
- Hourly workers: The new threshold will have no impact on the pay of workers paid hourly.
- Workers with regular workweeks of 40 or fewer hours: To the extent that many salaried white-collar staff have jobs where they work no more than 40 hours, the changes to the overtime rules will have no effect on their pay.
- Law enforcement and fire protection employees who regularly work hours that conform to the longer work periods permitted for such employees, the changes will also not impact their pay.
- Workers who fail the duties test: Salaried workers who do not primarily perform executive, administrative, or professional duties are not eligible for the white-collar overtime exemption and therefore are not affected by the final rule.
- Highly compensated workers: White collar workers who fail the standard duties test but are “highly compensated”—earn more than $134,004 in a year—are almost all ineligible for overtime under the highly compensated employee exemption, which has a minimal duties test.
- Police and fire employees in small agencies: Fire protection or law enforcement employees in public agencies with fewer than five fire protection or law enforcement employees respectively will continue to be exempt from overtime.
- Elected officials, their policymaking appointees, and their personal staff and legal advisors who are not subject to civil service laws
- Public employees who have a comp time arrangement
To avoid problems and lawsuits:
- Audit your compensation program and pay practices for compliance
- Review the classification of all exempt workers, particularly those being paid under $47,476
- Put in place a safe harbor policy, which states that if an employee feels he/she has been incorrectly paid, to bring it to your attention for review.
Develop a plan now to implement before the December 1 deadline. If you have questions, contact the Dacri HR HelpLine.