What You Need to Know About the Updated FLSA Overtime Rule

Posted on 02. Jun, 2016 by in Bookkeeping Articles, Small Business Tips, Website Resource

overtimeOn May 18th, President Obama announced the Department of Labor’s updated overtime regulations taking effect on December 1, 2016. 

The Department is proposing updating current regulations governing executive, administrative, and professional employees (white collar workers) under the Fair Labor Standards Act (FLSA) minimum wage and overtime pay. The regulations were last updated in 2004 with the current salary threshold for exemption was at $455/week ($23,660 per year).  The DOL is projecting that 4.2 million American workers will be impacted by this new rule.

What is the Fair Labor Standards Act?

Also known as FLSA – the act was passed in 1938 by Congress and signed by the President Roosevelt.  When the act was originally passed, it introduced a 7-day work week at a maximum of 44 hours. It also explained the standards for overtime pay and minimum wage. Employers are required to pay covered employees who are not exempt from overtime, which is one and a half times their hourly rate of pay.

The changes to the Overtime Rule:

  1. Sets the standard salary level for full time salaried workers to $913/week – $47,476 a year (40th percentile of weekly earnings). This is an increase estimated at 200% from current regulations.
  1. Increases the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of $134,004 (90th percentile of weekly earnings). This is an increase estimated at 22% from current regulations.
  1. Establishes a mechanism for automatically updating the salary and compensation levels going forward to ensure they will continue to provide a useful and effective test for exemption.
  1. The changes go into effect on December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on this date.
  1. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

How you can prepare:

  1. Prepare a duties test (https://www.dol.gov/whd/overtime/fs17a_overview.htm) to accurately determine which employees are properly classified as exempt (salaried) or non-exempt (hourly).
  1. Determine how many hours each person actually works. Most exempt employees only work 40 hours a week so this means the new overtime regulations will not effect them.
  1. Review work schedules and pay rates to determine which employees would be slated for conversion from exempt to non-exempt status.
  1. Ensure that all managers and supervisors are aware of the new regulations.
  1. Review current job descriptions to ensure that they accurately describe their job responsibilities.

For additional information, please visit:

US Department of Labor Overtime Fact Sheet:

https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm

US Department of Labor: Wage and Hour Division Final Rule: Overtime

https://www.dol.gov/whd/overtime/final2016/US Department of Labor: Wage and Hour Division Final Rule: Overtime

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