Big changes are coming on December 1, 2016 as a new rule under the Fair Labor Standards Act (FLSA) will alter the way in which compensation is calculated for many employees. As the deadline looms, it is imperative that employers understand which of their employees will be affected by the rule changes and what they must do to remain in compliance.
Who is affected by the new FLSA overtime rule?
The United States Department of Labor has provided an overview of the new rule which outlines which employees will be affected by its requirements.
Under the current rule, employees earning less than $23,660 are considered “nonexempt” and are entitled to overtime pay if they work more than 40 hours in a week. The new rule expands this protection to employees who earn substantially more – up to $47,476, a threshold that will be updated every three years to keep pace with current economic conditions.
According to the Department of Labor, the rule change will affect approximately 4.2 million workers nationwide.
What are the requirements for an employee to be classified as exempt?
The Department of Labor’s overview lays out the requirements for an employee to be classified as exempt.
To qualify for exemption, a white collar employee generally must:
- be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Employees who earn at least $134,004 annually are considered “highly compensated employees,” or HCEs, and are subject to a less-stringent duties test that allows more leeway to the employer.
What can employers do to ensure they are properly complying with the new rule?
The Society for Human Resources Management (SHRM) offers a checklist to help employers ensure that they are complying with the overtime rule. In some cases, employers may decide to increase an employee’s compensation in order to exceed the new threshold; in others, employers may find that reclassifying the employee as non-exempt and paying overtime is a more appropriate solution.
In order to ensure that employers remain in compliance with compensation rules, SHRM suggests an ongoing review of employees’ job duties and compensation in order to ensure that all employees are properly classified and that FLSA standards are being followed.
Compensation is a complicated, time-consuming issue for businesses. Please contact us today in order to access the best solution to your HR, accounting, and payroll needs!