Thursday, May 19, 2016

New Overtime Rules

So, it’s finally here! The DOL issued the final rules regarding overtime. There really aren’t any surprises from what has been expected, other than a minor drop in the proposed salary threshold.

Here are the highlights:

  • The new salary threshold will be $47,476 annually ($913/week). Any employee who makes less than this amount must be paid overtime for hours worked over 40 in a workweek, regardless of their duties.
  • This amount will change every three years. The DOL tied the amount to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. This is a slight change, as the proposed rules would have changed the amount every year.
  • There will be no changes to the duties test.
  • The amount increases for the "highly compensated employee" exception to the exemption to $134,004 – and that will also change every three years.
  • The new rules become effective December 1, 2016.
  • Another new tweak is that employers can now use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. 

Several pieces of guidance were also released that may help keep things straight:

DOL Chart – a quick comparison

Guidance for non-profits – more a clarification of how FLSA applies to non-profits.

Guidance for higher education

Fact Sheet on New Rules

DOL Blog

Your options remain the same, if you have employees currently designated as exempt who will no longer meet the salary threshold:

  • Reclassify to non-exempt and pay the overtime when due.
  • Raise salaries to an amount above the threshold.
  • Lower the effective hourly rate to take into consideration overtime worked, so the employee’s salary remains the same.
  • Limit overtime. This may cause issues with redistributing workload, or having to hire part-time employees to make up the difference.
What you decide to do will likely depend on your financial resources, how many employees are affected, and how many hours over 40 these employees currently work. Determining how much overtime is involved may be difficult since these employees were probably not recording hours, so take care in how you do this. And remember, the costs will only increase as the threshold increases every three years.

You may also get some push-back from employees who will now have to record their time and may lose some flexibility in their schedule. Being considered "hourly" may seem like a demotion to them. Think about how you will communicate this change (regardless of which option you choose) to lessen the resistance and hard feelings.

And just to brighten your day even more…..Maryland’s minimum wage increases to $8.75 an hour on July 1, 2016.

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