On May 18th, the U.S. Department of Labor (DOL) released regulations that will adjust overtime pay provisions under the Fair Labor Standards Act (FLSA). Taking effect December 1st 2016, new rules increase the minimum salary required for an employee to be exempt from FLSA overtime requirements.

Prior rule
Employees who meet the job duties test under the FLSA (Read our blog, “Is the DOL Updating the Standard Duties Test?” for more info on this) and earn at least $455 per week, or $23,600 per year, are exempt from overtime rules.

New rule
Under the DOL’s new guidance, those who meet the administrative, professional and executive exemptions under the duties test (which has not changed) and earn at least $913 per week, or $47,476 annually will now be subject to the exemption.

This means that, as of December 1st 2016, if an employee earns less than $47,476 per year, he/she must be classified as non-exempt and be paid time and a half for weekly hours over 40..

Any other changes?
There are a few other key changes in the new rules, namely:

• The salary threshold will routinely increase every three years to equal the 40th percentile of weekly earnings for full-time, salaried workers in the nation’s lowest wage census region.
• For the first time up to 10% of the salary threshold can be in the form of bonuses, commissions, and other incentive payments.
• The overtime threshold for “highly compensated” employees will increase from $100,000 to $134,004.

What actions should my business take?
There are a few things you should do to ensure that your business is complying with the DOL’s new rules. This includes:

• Reviewing your current employee classifications. Do the new rules change who is exempt and non-exempt in your establishment?
• Analyzing whether you should raise certain employees’ salaries to meet the exemption requirements—Would that be more economical than paying them overtime? If an employee works overtime on a regular basis, and his/her salary is closer to the new minimum (47,476) you might want to raise his/her salary so you can retain the exemption. If the opposite applies (salary closer to previous minimum and doesn’t work overtime often), it might make sense to classify the employee as “non-exempt”.

For these next few months leading up to the December 1st deadline, maintain a clear line of communication with all employees to keep them in the loop about their exempt / non-exempt statuses. Those who change from exempt to non-exempt will have some significant changes to get used to including keeping track of their hours; you don’t want these employees to be unclear about their new expectations.

Questions? Contact us.

Visit the DOL’s website for a helpful list of Frequently Asked Questions regarding the regulations.