Summary of Changes
Employers look to the Fair Labor Standards Act to determine employee classification for overtime purposes (i.e. which employees must be paid overtime and which are exempt). In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to reflect the original intent of the Fair Labor Standards Act. On May 18, 2016, the Department of Labor issued the final overtime and exemption rules. These new rules increase the salary threshold to be exempt from overtime pay and it is estimated that this new law will extend overtime pay to an additional 4.2 million more Americans who are not currently eligible under current guidelines.
The final rules are effective December 1, 2016 and change the exempt employee salary threshold to $47,476 annually ($913 per week), which more than doubles the current threshold of $23,660. The final rules also include automatic increases every three years and allows for the inclusion of up to 10 percent of non-discretionary bonuses, incentive and commission payments to satisfy the salary requirement if paid on a quarterly or more frequent basis. There are also changes to other exemptions that might affect Highly Compensated and other employees.
Potential Impact to Employers
There are many implications for employers to consider as a result of these changes, including an increase in compensation costs, possible restructure of positions and possible changes between exempt and non-exempt status that might require different policies and procedures.
- Audit your workforce and payroll to determine the impact of the new rule.
- Analyze options and the impact of increasing salaries vs. converting to hourly employees.
- Develop communication plans for employees and managers.
While we were expecting these changes, there are still many things to consider when applying these rules to your business. Stay tuned as Warren Averett will continue to post additional updates and insights. Please contact your Warren Averett advisor to help you understand the implications of these new rules to your business.