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Are You Ready For The New Overtime Threshold?

November 1, 2016
Carlos Pastrana

New Department of Labor Overtime Rule Creates New Pitfalls for Employers

On May 18, the United States Department of Labor released its final rule regarding changes to the overtime threshold for the Fair Labor Standards Act (FLSA). Among other things, the DOL has doubled the minimum salary needed to qualify for the overtime exemption threshold under the FLSA, from $455 a week ($23,660 a year) to $913 a week (or $47,476 a year), with additional increases every three years.

The new regulations take effect on December 1, 2016. The overtime exemption threshold had been set in 1975 and had not been raised since then. However, forty years’ worth of inflation has reduced the purchasing power of a $23,600 yearly salary to virtually below the poverty line by today’s standards.

The new rule does not change the job-duties requirements for the FLSA’s overtime-pay exceptions. “Executives” still need to be shown to supervise at least two full-time employees, “administrative” employees still need to be shown to perform duties related to the management of a business using discretion and independent judgment, and “professionals” still include highly-educated or creative individuals. However, the threshold for employees who fall within the “highly compensated employee” exemption has been increased from $100,000 to $134,000 a year.

The impact of this rule on employers will be tangible. The most obvious consequence of the rule will be an increase in overtime paid by employers. Smaller businesses, in particular, may be the most affected, particularly those with a high number of hourly and seasonal employees, because overtime can be costly for businesses with fewer employees and locations and with fewer essential managers or employees expected to have occasionally heavy work schedules. Because of this, the new rules might result in businesses laying off employees or seeking to recoup the additional payroll expense somehow.

Employers will now need to start tracking hours for exempt salaried employees who are at or below the $47,476 threshold. Having an accurate calculation of hours worked per week will be very important for employers seeking to comply with the new rules. They will need to implement a time- and attendance tracking system that helps accurately manage employees’ hours and links with the payroll system, enabling them to run real-time reports on employees’ hours worked and rate of pay. This likely represents an additional investment in time, personnel, and resources.

The other important thing employers need to do is determine what employees in their payroll will be affected by the new regulation. This group primarily includes employees who perform executive, administrative, and professional duties and currently earn between the old minimum and the new minimum threshold salary. After identifying these employees, employers should have a plan in place for each of them, as they may now be eligible for overtime pay. Each of these employees should be assessed individually, depending on their current salary, their role, the classification of their role, and the number of hours they work.

Because non-compliance with the new rule may create exposure for employers, and perhaps even bring about an uptick in wage-and-hour litigation, employers are strongly advised to consult with an experienced labor and employment attorney while evaluating what, if any, impact the new rule will have on their business.

This article is a publication of MWH Law Group LLP and is intended to provide general information regarding legal issues and developments to our clients and other friends. It should not be construed as legal advice or a legal opinion on any specific facts or situations. For further information on your own situation, we encourage you to contact the author of the article or any other member of the firm.

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