As you’ve probably heard, the U.S. Department of Labor revised the regulations governing which employees are entitled to the Fair Labor Standard Act’s minimum wage and overtime pay protections last month. But, are you prepared to handle these changes effective December 1, 2016?
Recently, a San Francisco Bay Area human resources outsource provider was ordered to pay $1 million in back overtime wages along with damages to hundreds of employees after a U.S. Department of Labor investigation found widespread FLSA violations. Some salaried employees may be exempt but this company falsely believed that just raising an employee’s salary exempted them from receiving overtime pay. Salary alone is not enough to avoid the minimum wage and overtime rules. This is a prime example of why it’s so important to understand the rules surrounding the new regulations.
Key provisions of the Final Rule include:
- Sets the standard salary level required for exemption at the 40th percentile of weekly earnings
- Increases the total annual compensation requirement needed to exempt highly compensated employees
- Establishes a mechanism for automatically updating the salary and compensation levels going forward
The final rule raises the salary level for the first time since 2004 but makes no changes to the “duties test,” which should be required less often now, as entitlement to overtime pay will be more clear based on just salaries. To qualify for exemption, employees must meet certain criteria regarding their job duties and be paid on a salary basis at not less than $913 per week.
Without any employer action, the Final Rule extends the right to overtime pay to an estimated 4.2 million workers who are currently exempt, and for nonprofit organizations that can quickly add up. Otherwise, internal adjustments employers can make in response to the new overtime rule might include:
- Pay time-and-a-half for overtime work
- Raise workers’ salaries above the new threshold
- Reclassify currently exempt employees as hourly and reduce pay
- Limit workers’ hours to 40 per week and/or hire part-time workers to pick up the slack
With so much media attention on these new rules, employees are going to be more in tune with knowing their legal rights when it comes to overtime pay so make sure that this rule change is on the radar of company decision-makers and get prepared. Perform a mission-based analysis of the proposed regulations, review those job descriptions ensuring they are reflective of duties actually performed, and make sure that your independent contractors are really “independent contractors” and not misclassified employees.