The U.S. Department of Labor just released a new Rule regarding the overtime exemption for full-time salaried workers. Under the current rule, any full-time salaried worker in an executive, administrative or professional position is exempt from overtime pay as long as the employee is paid at least $455 per week ($23,660 annually). However, starting December 1, 2016, the salary threshold will jump to $913 per week ($47,476 annually). This jump will have a drastic impact on employers who regularly avail themselves of the so-called “white collar” overtime exemption.
Likewise, the payment threshold for the highly compensated employees exemption (HCE) has risen from $100,000 to $134,004 annually.
Perhaps more importantly, the Department of Labor is instituting a mechanism to adjust the minimum thresholds on an ongoing basis, instead of leaving them at the same level indefinitely. This means the minimums are likely to rise in the coming years.
Employees not making the minimum salary must be paid overtime for any hours worked over 40 per week. Any employer who cannot afford the new minimum salary must now keep careful track of the employee’s hours. The new rule not only can effect the employer’s payroll, but also work schedules, record keeping requirements, and perhaps even staffing decisions. Failure to pay overtime can lead to expensive FLSA penalties, and even more expensive penalties under District of Columbia law.
Employers should be prepared for these changes and understand the significant impact they will have on their businesses. Employers of all sizes and in all industries should review their job descriptions to determine whether they accurately reflect employees’ job duties and the skills necessary to perform each job, paying close attention to the duties necessary to fall within the various overtime exemptions.
Employers should also conduct a self-audit to determine what changes they may need to make to employee classifications. At a minimum, employers should identify those employees in exempt positions who currently fall near or below the proposed salary threshold of $970 per week, as well as those who currently fall under the “highly compensated” exemption.
Employers should determine a plan of action for complying with the new regulations, which may include increasing minimum salaries for exempt employees or reclassifying employees as nonexempt, hourly workers. Employers should also have a plan in place to communicate these changes to employees, who may be resistant to the changes imposed by these new rules, and to train their managers regarding the implications of the new regulations.
The effects of the new rule may seem painful, but it does not have to be with proper planning. An employer still has options to minimize the impact of the new rule, both on payroll and employee morale. A thorough understanding of your rights and responsibilities under the white collar overtime exemption is essential before making any drastic employment decisions.
If you have questions about how the new rules will affect your business, contact us for a more detailed analysis.