On May 18, 2016, the U.S. Department of Labor (DOL) announced its Final Rule to increase overtime eligibility under the Fair Labor Standards Act (FLSA). This new rule will go into effect on December 1, 2016.
Below is a summary of the rule’s key provisions:
- Increasing the minimum salary requirement for the FLSA’s executive, administrative, and professional exemptions to $913/week ($47,476/year). This more than doubles the existing federal threshold of $455/week ($23,660/year). This minimum salary level is necessary for an employer to claim exemption status for overtime pay.
- Increasing the total minimum compensation employees must receive in order to fall under the “highly compensated” employee exemption to at least $134,004/year. Currently the total annual compensation for highly compensated employees (HCE) is $100,000.
- Every three years the DOL will adjust the minimum salary requirement for the FLSA’s executive, administrative, and professional exemptions to prevent the salary threshold from becoming outdated in the future. The first adjustment is scheduled for January 1, 2020. Salary requirements will be published by the DOL at least 150 days before those changes take effect.
- What does this all mean for small businesses?
- It could change the pay structure for employees making less than the new threshold from salaried to an hourly rate.
- It could raise the pay above the threshold so the employer doesn’t need to worry about overtime.
- It could cut the base salaries of those who regularly work more than 40 hours with the expectation that overtime pay will make up the difference.
While the final rules will cause greater costs for employers, in the long run it might increase retention of employees who are covered by the FLSA rules. In light of the new minimums it’s important that employers evaluate their employees and determine which workers qualify for overtime.
For more information about these overtime changes contact your LSL Advisor.
