The U.S. Department of Labor (DOL) rule on overtime is finalized and goes into effect on December 1, 2016. Earlier this year, I provided you with background information on the DOL's proposal to update the regulations governing the Fair Labor Standard Act’s (FLSA) minimum wage and overtime pay protections and the likely impacts of this proposal to your business.
HERE'S WHAT YOU NEED TO KNOW(the main provisions of the new overtime rule):
1. The salary threshold for an executive, administrative, and professional employee exemption (white collar workers) is $47,476.00. The current threshold is $23,660.00 (updated last in 2004). The new level is based on the 40th percentile of weekly earnings for full-time salaried workers.
2. The total annual compensation needed to exempt highly compensated employees (HCEs) is $134,004.00. This level was set based on the 90th percentile of weekly earnings for full-time salaried workers.
Note: These salary and compensation levels will automatically update every three years to ensure the levels are at above percentiles.
HERE'S WHAT YOU NEED TO DO (plan now, don't wait…December will approach fast):
1. Employers who have employees classified as exempt under the current overtime rule must identify whether the employees continue to meet the tests for the HCE or executive, administrative or professional exemption.
2. Employers must determine which exempt employees are impacted by the new salary threshold. As of December 1, 2016, any exempt employee earning less than $47,476.00 annually must be paid for all hours worked in excess of 40 at a rate that is one and one-half times the employee's regular rate of pay.
David meets the professional exemption and earns $47,100.00 annually. This amount is less than the new salary threshold of $47,476.00. After December 1, 2016, David works 50 hours. 50 hours x 22.64 (hourly rate) = $1,132.00; 10 hours of overtime x 11.32
(one-half the hourly rate) = $113.20. Final calculation: $1,132.00 + $113.20 = $1,245.20.
To comply with the new overtime rule, David’s employer must pay him $339.60 for the 10 hours of overtime. If he continues to work overtime on a regular basis, you can see how the additional costs will add up significantly. Since David's annual salary is only $376.00 less than the new salary threshold, it would be wise to consider increasing David's salary to the new threshold amount to avoid paying overtime.
3. Employers should review their budgets and plan ahead for any overtime that they were not previously paying.
4. Employers should determine best strategies for complying with the new overtime rules. Several options include A) make adjustments in personnel, B) increase employee salaries to the new salary thresholds to avoid paying overtime (as in the example explained above), C) keep the employee's salary as is, reclassify the employee as non-exempt, and start paying overtime.
5. Employers should make it a formal practice of re-evaluating exempt and non-exempt employees every three years as the thresholds are automatically updated.
6. Employers should modify their existing overtime policy and employee handbooks and inform employees that overtime must be approved in advance by management.
Finally, clear and concise communication with employees on the new overtime rules is critical to help ensure a smooth transition.
CoreHR is here to help you determine what is best for your business in areas of compliance, budget and employee relations. Please call us for help with strategies on how to comply with the new overtime rules.