New Overtime Law Coming December 1

August 5, 2016

New Overtime Law Coming December 1

…and it’s complicated. Here are some of the things you should know.

In 2014, President Obama signed a Presidential Memorandum that may have impact on you and your company’s employees beginning December 1, 2016. Designed to modernize and simplify the Department of Labor’s overtime rules as they apply to white collar workers, the updating that Obama requested was intended to, “…reflect the original intent of the Fair Labor Standards Act.”

Based in part on over 270,000 comments received from the public, the “Final Rule” that spelled out the new overtime regulations was published on May 28, 2016. These changes are expected to affect over four million workers in the first 12 months.

Some Background

The Fair Labor Standards Act, signed by President Franklin D. Roosevelt in 1938, affected roughly one-fifth of the workforce, and ruled that:

  • There would be a minimum hourly wage of 25 cents.
  • The workweek should not exceed 44 hours.
  • Oppressive child labor would be banned.

Obviously, the FSLA has been updated numerous times over the last eight decades.

The “White Collar Exemption”

Workers who make above a designated salary are not usually eligible for overtime, though there are exceptions. These high-paid employees tend to get extras unavailable to workers who make less. They sometimes get better benefits. Their jobs may be more secure. And opportunities for advancement are usually more readily available.

But what about salaried employees in professional positions who fall into that gap between hourly workers who can be paid overtime and senior staff who have more fringe benefits and don’t necessarily need it? The FSLA—before this year’s rule change—stated that any salaried employee making more than $455/week ($23,660 annually) would be subject to the White Collar Exemption, and be unable to collect overtime pay.

That figure was established as part of an update in 2004, 12 years ago. As of December 1, 2016, that 2004 number will double. Salaried employees who make less than $913/week ($47,476) will be eligible for overtime pay at a rate of at least time-and-a-half.  Those who make more may also be eligible based on their duties (we can tell you more about this). Further, the standard salary level requirement will be automatically updated every three years.

Note: As a part of this revision, employers will now be allowed to factor in nondiscretionary bonuses and incentive payments like commissions. As long as they are paid on at least a quarterly basis, this extra income can be used to satisfy up to 10 percent of the new salary level.

Your Options as an Employer

If you have employees that now fall into this salary range, you can do one—or a combination—of three things:

  • Pay workers more so that they don’t fall into the mandatory overtime range.
  • Restrict employees from putting in more than 40 hours per week.
  • Pay those affected employees time-and-a-half for overtime.

You’ll need to decide how each of these three options will affect your company’s payroll – and that’s not an easy decision. We’d be happy to help you evaluate the impact that the updated FSLA will have on your business, and to determine what your best path might be.

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