Final FLSA Overtime Regulations to Take Effect December 1 2016

May 18, 2016

The United States Department of Labor today announced its new regulations for overtime pay under the Fair Labor Standards Act (FLSA). Millions of workers are likely to be affected by the new salary threshold, which is more than doubling, from $23,660 to $47,476.

The rule goes into effect on Dec. 1, 2016, giving employers time to prepare. Some key provisions and implications of the new rule include:

  • 4.2 million additional workers are estimated to be newly eligible for overtime pay.
  • Workers making less than $47,476 annually ($913 per week) must be paid overtime for any hours of work exceeding 40 per week. This applies even if the employee is classified as a manager or professional.
  • Essentially, any employee making less than $47,476 will now be non-exempt so employers should start tracking the hours worked of everyone making less than the threshold amount.
  • The Department of Labor will increase this threshold every three years based on inflation. Some are estimating that employers may see it increase to more than $51,000 in January 2020.

Bear in mind, this final rule change does not alter any job duty requirements under FLSA to qualify for exemption status.

Marsh & McLennan Agency will continue to keep you up to date on the new rule and its implications to your business. For now, please keep in mind the following:

  • Effect on Employee Benefits: Start thinking about how they will be affected. For example, premiums for life and disability insurance are often calculated based on employees’ salaries or annual pay so any changes to that may affect your premiums. MMA’s benefits representatives are available to help you.
  • Effect on Bonuses: Under this rule, portions of discretionary bonuses or payments may be used to arrive at the threshold.  If any of your employees’ compensation is variable (e.g., bonuses and/or commissions based on a fixed formula), you should review your compensation practices closely. Additionally, there are requirements concerning the frequency of these payments for them to be considered in the salary test.
  • The Duties Test: The Duties Test is not changing; however, employees should consider ensuring they are compliant with the rules because jobs change and evolve. MMA clients with access to ThinkHR can use a classification tool to help determine exempt/non-exempt status. This tool will be updated shortly with the new rules.
  • Budget Impact: Start adjusting your budget now to accommodate future salary threshold increases. Don’t just limit your planning to 2016. The salary threshold is expected to rise to more than $51,000 with its first update on January 1, 2020. You should also plan for any additional overtime that could come from this change.
  • Internal Communication: How you choose to communicate to employees this rule change and any correlated organization policy changes you enact should be carefully thought through. Employees can misunderstand intentions. For example, a change from exempt to non-exempt status could be perceived by some as a demotion. And, new job expectations need to be fully understood as well, such as tracking time worked.

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