The US Department of Labor (DOL) announced new overtime regulations under the Fair Labor Standards Act (FLSA). Many workers who before were exempt from such overtime regulations will now become eligible to have their overtime pay. Under the new regulations, any worker making $47,476 or less must be paid overtime for hours worked in excess of 40 in any given week. The new threshold applies whether the employee receives a salary or hourly pay. The overtime rate must be at least time and one-half. The new FLSA regulations will go into effect on December 1, 2016.
Highly compensated employees are is now defined as $134,004 or higher. The new regulations substantially increase the threshold for highly compensated employees, which is currently $100,000. Such highly compensated employees are exempt from the overtime rules as long as they meet the minimal duties test set forth in the regulations. See a copy of the final rule at https://www.dol.gov/whd/overtime/final2016/.
The changes in the FLSA were initiated by President Obama in 2014. The Presidential directive was an effort to make sure that “If you work more, you get paid more.” The new thresholds are based on the weekly earnings of full-time salaried workers in the lowest-wage Census Region. The new thresholds will be updated every three years, starting on January 1, 2020. This wage amount will automatically reset every three years. The next change will be January 1, 2020.
What do the FLSA changes mean for your business?
As a result of the changes in the thresholds, millions of workers will lose their current exempt status (usually referred to as the FLSA-exempt status) in December 2016. With these FLSA changes, the biggest impact for most businesses will be that more salaried employees will have to be compensated for working more than 40 hours a week. There are no exceptions to this new rule for small or medium businesses, affecting almost every business. The affected businesses are most likely be found in the education, retail, health services, manufacturing, business, and professional industries.
Up to 10% of the compensation amount can be in the form of nondiscretionary bonuses or incentives, as long as it’s paid at least quarterly.
What changes can I make to keep costs low?
There are two main ways to control rising costs for small and mid-size businesses. The first is to cut overtime and limit the employees’ hours to 40 hours a week. Another option would be to give affected employees raises to meet the new threshold requirement.
For employers, the new FLSA regulations and the decisions tied to these regulations can be overwhelming. Not only these regulations increase the costs of doing business, but also puts burden on the businesses to evaluate their compensation structure to ensure optimal solution. To address these changes, small and medium-sized businesses should contact their HR professional or employment attorney for advice. Even if December seems far away, starting to change now will ensure a smooth and successful transition.
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