Final Changes to the FLSA "Overtime Rule"

A few weeks ago, the proposed changes to the Fair Labor Standards Act (FLSA) regulations were discussed in this blog.  On May 18, 2016, the Department of Labor issued the final version of the updated rule and gave businesses 200 days to comply.   The new rule is expected to impact 4.2 million workers and increase wages by $12 billion over the next ten years. 

In case you missed the first half of this discussion, the rule currently states that salaried employees earning at least $23,660 that also pass the FLSA “Duties” test can be considered exempt from overtime pay.  The “Duties” test is used to demonstrate that the employees primarily perform executive, administrative, or professional duties.  

 

The updates to the rule are:

  1. The salary threshold is increased from $23,660 to $47,476 a year or from $455 to $913 a week.  Under the rule, salaried employees still have to pass the “Duties” test but not until their annual salary reaches $47,476.
  2. The salary threshold will be updated every three years.   According to DOL’s projections of wage growth, the threshold amount will be approximately $51,000 at the time of the first adjustment in 2020.
  3. The threshold for “highly compensated employee” is increased from $100,000 to $134,000.   At this salary level, only a “minimal showing” is needed to demonstrate if an employee is not eligible for overtime.
  4. Bonuses and incentive payments may count for up to 10% of the new salary thresholds.

These changes mean that one of three things will have to be done at almost every company with currently “exempt” employees that work more than 40 hours a week.

  1. Affected employee salaries will have to be increased above the new threshold ($47,476)
  2. Affected employees whose salaries remain below the threshold, will have to be paid overtime; or
  3. Affected employees will need their hours worked capped at 40 hours a week to avoid overtime.

Like them or not, these changes go into effect on December 1, 2016. More details are given at www.dol.gov. 

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