Fair Labor Standards Act Overtime Rule

The changes to the overtime rule may seem fairly simple but are substantial, and depending on each individual company, the impacts can vary greatly. The key change that will be affecting employers on December 1st is the salary compensation levels for Executive, Administrative and Professional workers to be exempt from overtime pay. The previous salary minimum was set to $23,660 per year or $455 per week. With the new regulations in place, the minimum has increased to $47,476 per year or $913 per week. In addition to this change, here are some other details about the new overtime rule:

  • There is no change to the duties test.
  • The salary threshold will be increased every three years to ensure that the salary amount remains at the 40th percentile among salaried employees.
  • Up to 10% of the salary threshold can calculate non-discretionary bonuses and incentive payments.
  • Highly Compensated Employees will have their threshold increased from $100,000 to $134,004.

What Options Do Employers Have?

The new overtime rules take effect on December 1st of this year. That means all of your pay changes need to be in place by this time if you want to stay compliant. In order to stay complaint, employers have a few options. Employers can:

  • Increase their employees’ salaries above the threshold in order to maintain the employees’ exempt status.
  • Pay an employee at their current salary level but pay them overtime for working above 40 hours a week.
  • For non-exempt employees, limit the number of hours employees work to 40 per week but this is not always feasible for companies to do and enforce.

Can Lawsuits Stop the Overtime Rule or Change It?

While the new overtime rules have hit some pushback from various sources, the law is still planned to go in effect on December 1st. Since it was first announced, 21 different states joined together and filed a lawsuit. In addition, another lawsuit was filed by various business groups.

The three major components of the lawsuits, which have been combined into one consolidated lawsuit as of October 19th, maintain that:

  • The Department of Labor (DOL) has raised the salary threshold too high, almost double, and have exceeded their authority by doing so. The legality of the rule as a whole is being challenged.
  • The fact that the salary threshold increases every three years is unlawful. This increase will be based on the 40th percentile of the lowest salaried workers in low-wage areas according to the Census, and there has been nothing in history that would support indexing in this manner or automatic increases.
  • The DOL is unconstitutionally requiring states to pay overtime to state employees. This is only something that is being challenged legally for individuals performing white collar tasks in the case that they are state employees earning a salary less than the amount determined by the federal government.

Changes may be coming to the FLSA overtime rules but until those happen, you must stay compliant. Employers are urged to have a plan in place, including a plan for how you will communicate to affected employees, for the December 1st deadline and be prepared for the rule to move forward as planned. Meet with your payroll advisors to determine what the best course of action is for your company.

If you have any questions, please don’t hesitate to contact BSSF today!


ABOUT THE AUTHOR

yohn

Susan T. Yohn, SPHR, SHRM-SCP

Director of Human Resources

Susan manages all areas of the HR Department as well as consults with clients on topics including, but not limited to: recruitment, orientation, employee relations, compliance with HR related laws, employee benefit plans, Family and Medical Leave Act (FMLA) and Workers’ Compensation.