Saturday, June 11, 2016

Unraveling the New FLSA Overtime Rule

" By working faithfully eight hours a day, you may get to be a boss and work twelve hours a day." --  Robert Frost

The effective date for applying the new overtime rules is December 1, 2016. (Be aware that this is a Thursday so you will need to make changes for the payroll period in which December 1 falls accordingly). Out of all the questions I get concerning rules, regulations, and government interference... I mean new laws, this is perhaps the most concerning for employers.

So, here is an attempt to clarify the new rule, which is over 500 pages, to make some sense of how it affects your business. The rule is being marketed as a save-all for employees who have been working long hours without getting paid overtime for them. Unfortunately, the rule won't help employees as much as it is advertised. There will be some who will benefit and some who will suffer. Some will see extra pay and some will see their hours cut in an effort to avoid the new ruling.

The main changes presented in the final rule relate to the minimum salary levels that apply to the white collar overtime exemptions, as well as the formulas for calculating and increasing these levels. However, no changes were made to the exemptions for outside salespeople, teachers, lawyers or doctors.

Here is what it boils down to:

1.) Minimum salary level: Since around 2004, the salary level for white collar overtime exemptions has been $455 per week, or $23,660 per year. The new rule sets the minimum salary at $913 per week, or $47,476 per year. This rate was established based on the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region in the United States, currently the South. This increase now places the federal minimum salary level higher than the corresponding salary levels in California (currently $41,600 per year) and New York (currently $35,100 per year).

2.) Highly compensated employees: The current minimum salary level to qualify as a highly compensated employee is $100,000 per year. The final rule increases it to $134,004 per year. According to the Department of Labor, this amount represents the 90th percentile of full-time salaried workers nationally. To satisfy the requirements of the highly compensated employee test, employees must be paid a minimum of $913 per week in guaranteed salary. But, for compensation paid in excess of the minimum $913 per week, the regulations remain unchanged that bonuses or other incentive payments can be used to establish the $134,004 per year required salary. In other words, additional compensation of up to $86,528 - in the form of bonuses, commissions, or incentive payments - can be used to satisfy the highly compensated employee test.

3.) Use of nondiscretionary bonuses and commissions: - The DOL’s final rule permits employers to use other forms of compensation to satisfy up to 10% of the new minimum salary requirements. The additional compensation must be paid at least quarterly and may include nondiscretionary bonuses, incentive payments and commissions.

The final rule requires employers to pay exempt employees at least 90% of the minimum salary level per workweek. This equates to $821.70 per workweek or $42,728.40 annualized. Additional compensation – up to $4,747.60 per year, or $1,186.90 per quarter – may be used to satisfy the remainder of the salary requirements.

There is a little more fluff to the new ruling, but this is basically what it covers. The bottom line is that some employees will benefit and some will suffer due to working fewer hours. Remember that in all cases, document your pay policies and make sure you are following these new rules come December, 2016.

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