A few months ago, the U.S. Department of Labor (DOL) announced its final rule for overtime pay exemptions under the Fair Labor Standard Act. Set to take effect December 1, 2016, the new overtime regulations will have a massive impact on employers. It is estimated that 4.6M Employees will be affected by this change in year 1 alone.
Key provisions of the final rule are:
Sets the standard salary level at $913 per week or $47,476 annually for a full-year worker;
Sets the total annual compensation requirement for highly compensated employees subject to a minimal duties test to $134,004; and
Establishes a mechanism for automatically updating the salary and compensation levels every three years beginning on January 1, 2020. The first salary level update is estimated at $51,168. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. The Final Rule makes no changes to the duties tests.
Employers will need to identify employees who no longer meet the salary test. When this rule takes effect, employees subject to the salary test who make less than the new salary level will no longer be eligible for exemption and therefore must be paid overtime compensation. Responding to this change can have a significant effect on a business and business model.
When going through the reclassification analysis there are various strategies for Responding to proposed changes. Below are a few strategy options:
Increase the salary level for affected employees
Reclassify as non-exempt and overtime eligible
Reduce staff and have other exempt managers absorb duties and perform more work
Hire more part-time workers
It is important to note that the solution will not be a one size fits all, employers must take an overall holistic approach to their analysis. Consulting with outside counsel to help navigate the employer through these issues will give them the best and most affirmative defenses to address this change.