Overtime Pay Rule Takes Effect December 1, 2016

U.S. Department of Labor Announces Final Overtime Pay Rule

On May 18, 2016, the U.S. Department of Labor (DOL) announced its final overtime pay rule under the federal Fair Labor Standards Act (FLSA), which will take effect on December 1, 2016.

Here are the key provisions that covered employers need to be aware of:

1. The Final Rule updates the salary threshold for determining whether an employee is exempt from the FLSA’s overtime pay requirements under the executive, administrative or professional “white collar” exemptions to:  $913 per week, or $47,476 annually (note that the salary level test does not apply to teachers, doctors and lawyers).  The prior salary threshold was $455 per week, or $23,600 annually.
   Employers may use nondiscretionary bonuses and incentive payments, including commissions,to satisfy up to 10% percent of the new standard salary level, if those payments are made on a quarterly or more frequent basis. (Remember that, even if an employee’s salary exceeds the salary threshold, he/she must still meet a “duties” test to fit within one or more of the “white collar” exemptions from overtime pay under the FLSA).
2. The total annual compensation requirement for workers classified as exempt under the “highly compensated employee (HCE)” exemption is now $134,004, up from $100,000 annual compensation.
3. The above salary thresholds in item #1 and #2 will be automatically updated every three years, beginning on January 1, 2020.

What Should Employers Do Now?

Employers should take steps to ensure compliance with the Final Rule by the December 1st deadline.  In discussions with their employment counsel, employers would be well-advised to:

1. Conduct a self-audit of all worker classifications, including reviewing salaries of employees who are earning less than $913 per week ($47,476 annually) to determine whether the positions associated with those salaries will need to be reclassified as non-exempt or salaries will need to be increased to maintain the exemption.
2. Review salaries of workers classified as “exempt” under a “highly compensated employee” exemption to ensure that those positions still qualify for that exemption (i.e., they are earning annual compensation of $134,004 which includes at least $913/week on a salary or fee basis;  their primary duty includes performing office or non-manual work; and they customarily and regularly perform at least one of the exempt duties of the "white collar" administrative,  executive or professional exemptions).
3. Determine the financial and budgetary impact of converting those “exempt” employees to non-exempt status.  Will the organization need to staff differently, hire more people working fewer hours, issue or re-issue policies addressing off-the-clock work to ensure that converted workers are no longer working before and after scheduled hours, and/or make other staffing adjustments?
4. Review and update job descriptions to ensure they accurately reflect worker classifications of “exempt.”  Although the DOL decided not to make changes to the standard duties tests, employers would be well-advised to pay particular attention to the job duties of workers classified as “managers” and “assistant managers” because much litigation has been brought by workers with those titles, claiming that they were actually performing non-exempt duties, notwithstanding their lofty titles.
5. Ensure proper time records are maintained for all non-exempt staff (including newly converted to non-exempt) as failure to do so is an independent FLSA violation.
6. Consider how to mitigate the impact on employee morale when employees previously classified as exempt may view a reclassification to non-exempt status as a demotion.

Finally, note that even if an employer is not covered by the FLSA, some States may adopt the FLSA’s salary level test for exempt status under their own wage and hour laws.  Furthermore, although the federal law provides the minimum standards, States may have more employee-protective wage and hour laws including higher salary thresholds than what the FLSA will now require.

Employers can learn more at the U.S. Department of Labor’s website regarding the final rule:  https://www.dol.gov/whd/overtime/final2016/index.htm

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