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What the New Overtime Rule Means for Your Business

On May 18, 2016, the US Department of Labor (DOL) released final regulations regarding the Fair Labor Standards Act’s (FLSA) executive, administrative and professional overtime exemptions.  The most significant change to the overtime regulations is an increase in the salary threshold for the exemptions from the current $23,660 per year ($455 per week) to $47,476 per year ($913 per week).  The job duties test to determine whether an employee is exempt or not remains unchanged.  The final regulations take effect December 1, 2016.

Employers with exempt workers that have salaries under $47,476 should start planning for these changes by reviewing current payroll and policies.  If your payroll includes exempt, salaried employees paid less than $913 per week, you will need to re-classify or increase the salary before December 1, 2016, for the position to remain exempt.

Policies to review include, but are not limited to, overtime, classification of workers, and pay cycle.  Employers should have a defined overtime policy to provide clarity between both parties. This policy should have a procedure in place to handle unauthorized overtime because an employee must be paid regardless if it was permitted or not.  Employers are responsible for tracking hours and need to be diligent in reviewing employees’ hours.  Classifying workers includes hourly versus salary, as well as job duty requirements to qualify for exemption.  Employers should also evaluate the defined workweek.  Pay cycles where the period cuts off at the end of a week are easier to track and monitor overtime than those where the period cuts off mid-week.  This can cause confusion for both the employee and the employer and additional time to calculate to ensure overtime is paid when warranted.

In addition, federal law provides that certain “highly compensated” employees qualify for exempt status if they customarily and regularly perform some executive, professional or administrative duties. Under the final regulation, employees who are paid $134,004 annually, will meet the salary threshold for this exemption, which is an increase from the current $100,000.

One other key provision of the final regulation is the threshold for executive, administrative and professional overtime exemptions as well as the highly compensated employee exemption will be automatically updated (i.e., raised) every three years starting on January 1, 2020, based on wage growth over time. This means employers must keep a watchful eye on future changes to the salary levels applicable to these exemptions, and review their payroll on a regular basis, or at least every three years, to ensure continued compliance.

The time to prepare is now as December 1st is rapidly approaching.  Contact your MarksNelson advisor for additional guidance and solutions to ensure you are in compliance with the new regulations.

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About the author

Nicole Eshnaur works with businesses to assist them in preparing their financial statements, planning for their tax situation, managing their cash flow and payroll needs, and forecasting their future financial needs.  She can assist with accounting software consulting and training, as well as accounting staff training.


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