The United States Department of Labor (DOL) had published its final rule for the Fair Labor Standards Act (FLSA) on May 18, 2016 which will take effect December 1, 2016.  Here are some additional changes to the final rule and the effect it will have on employers.  

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FLSA White Collar Exemption Rule: Additional Details

Sep 22, 2016

The United States Department of Labor (DOL) had published its final rule for the Fair Labor Standards Act (FLSA) on May 18, 2016 which will take effect December 1, 2016. In short, if you have salaried employees classified as exempt from overtime who are earning less than $913 per week, these employees may become eligible to earn overtime for hours worked in excess of 40 hours per week.

Outlined below is the final version of the rule and some of its effects on employers.

What are the changes to the final rule?

Generally, in order to classify an employee as exempt from the minimum wage and overtime pay requirements under this rule, the following conditions must be met:

  • The employee performs certain duties consistent with an exempt status
  • The employee is salaried
  • The salary does not fall below the minimum threshold documented in the Final Rule

Although the duties tests remain unchanged in the final rule, the minimum salary requirement increased from $455 to $913 per week (which equates to an increase from $23,660 to $47,476 annually).

Also added is the allowance that up to 10% of threshold salary amounts can come from non-discretionary bonuses, incentive payments, and commissions, if paid at least quarterly for non-HCE employees.

Further, the annual minimum total annual compensation requirements for highly compensated employees (HCEs) also increased, from $100,000 to $134,004. The annual minimum salary also applies to HCEs, meaning that to qualify as exempt, HCEs must meet both the annual salary and total compensation threshold requirements.

What is the effect on employers? 

This change may increase the number of employees in your organization entitled to overtime pay. You should consider what response to the final rule will be the most effective and appropriate for your business.

Assuming that overtime work cannot be completely eliminated, employers with affected employees will generally consider the following options as they pertain to each employee or groups of similarly-situated employees:

  1. Reclassify employees as hourly, non-exempt. With this option, employers must pay overtime. 
  2. Reclassify employees as salaried, non-exempt. With this option, employers must pay overtime. 
  3. Continue to classify employees as exempt by raising their salaries to the minimum threshold required by the final rule or a salary higher than the minimum as appropriate to maintain pay equity. With this option, which assumes that the employee passes the applicable duties tests, overtime pay is not applicable.

Reclassifying an employee may have other impacts. In addition to potential changes related to overtime, reclassification may impact benefit enrollment or change an individual’s eligibility for benefits, and can even lead to employee morale issues.

For more information about the new Department of Labor Overtime Rule, visit the website here.