On May 18, 2016, the Department of Labor (DOL) released a long-anticipated Final Rule on the overtime pay regulation under the Fair Labor Standards Act (FLSA). The Final Rule will significantly alter current pay structures for employees and have a large impact on small businesses. The current salary threshold for exempt employees is $455 a week ($23,660 per year). Effective December 1, 2016, the newly revised standard salary threshold will be $913 a week ($47,476 per year) for full-time exempt workers.
Key Elements Under the Final Rule:
· The Final Rule sets the standard salary level at the 40th percentile of earnings for full-time salaried workers at $913 per week, or $47,476 per year. The salary threshold will be updated every three (3) years.
· The annual compensation requirements for Highly Compensated Employees (HCE) is increased from $100,000 per year to $134,004 per year, subject to a minimal duties test.
· There will be no changes to the duties test that is used to determine exemption eligibility.
· Employers are permitted to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% (or $4,476) of the new standard salary threshold, as long as the payments are made at least quarterly.
What Does This Mean for Your Organization?
To prepare, for the implementation of the Final Rule, employers should begin reviewing and analyzing the positions held by exempt employees who are paid less than $913 per week as set forth below.
First, the employer should review each exempt employee’s job description. In order for an exemption to apply, an employee’s specific job duties and earnings must meet all applicable FLSA requirements. Job titles never determine exempt status under the FLSA.
Second, a salary analysis should be completed to determine how many hours on average an employee works in a year or within a pay period. As a business owner or senior level manager, you should make this analysis: Is it more cost effective to pay the overtime amount of 1½ times the employee’s regular rate of pay for any time worked over forty (40) hours or to increase the employee’s wage to meet the new salary threshold of $47,476?
Finally, once the position description review and salary analysis have been completed, an employer has several options to remedy the situation and ensure compliance with the new regulation changes. Below are a few of the options available to employers if they are currently paying employees less than the threshold of $47,476:
· increase the employee’s salary to meet the new threshold required; or
· pay the same salary, but also pay overtime; or
· pay the employee an hourly wage plus overtime; or
· reduce the employee’s salary to account for anticipated overtime; or
· utilize an alternative compensation plan which includes payment of overtime.
For further questions, please contract Creative Business Solutions (CBS) so we may assist you with determining the best course of action for your organization. CBS can also assist with the evaluation and determination of appropriate FLSA classifications for the various positions in your organization. Please call us today so we may ensure your organization is prepared and compliant with the new FLSA overtime pay regulations to become effective December 1, 2016.