UPDATED 5/20 at 1pm – We just released podcast on this topic, listen below:
Throughout the past two years, we’ve been discussing the pending FLSA overtime rule changes on this blog. On May 18, the new ruling was announced, with the changes targeted by the Department of Labor to take effect December 1, 2016. At a glance, here’s what you need to know.
First, a refresher.
Before we dive into the details of the changes, let’s make sure we understand all the terms involved.
FLSA: An abbreviation for the Fair Labor Standards Act of 1938, also sometimes called the Wages & Hours Bill. It is a federal labor law that was enacted to protect workers by establishing a minimum wage, overtime pay, child labor protections, and the Equal Pay Act. The overtime rule is the part of the FLSA related to the new changes. The overtime rule requires employers to pay employees one-and-a-half times their regular rate of pay when they work more than 40 hours in a week (a.k.a. “time and a half”).
Is that Federal law really all I have to abide by? Not likely, as your state probably has additional wage and hour laws. Go here for Oregon’s and here for Washington’s.
Non-exempt status: Employees with this status are entitled to overtime pay under the FLSA. Essentially, they are not exempt from the FLSA. They are typically paid hourly, although some companies will class some of these folks as “salaried non-exempt” employees.
Exempt status: Unsurprisingly, the opposite of non-exempt status – people within this category are exempted from the overtime requirements. These employees do not have to track their hours and are not paid overtime, regardless of how many hours they work. These folks are commonly referred to as “salaried” employees.
Which status am I? Depends on your salary and type of work. There are sets of tests for classifying jobs as exempt based on the job description (not job title). It’s quite a complex process, typically requiring the help of an experienced HR professional or employment attorney.
Salary threshold: The minimum earnings required to qualify for exempt status. Currently the salary threshold is $23,660, or $455 a week.
Ok, got it. What’s changing?
- The salary threshold for the White Collar Exemptions. This December, the salary threshold will rise from $23,660 to $47,476 a year, or from $455 to $913 a week.
- The Department of Labor will also institute regular updates to the salary threshold. Every three years, the salary threshold will be adjusted to the 40th percentile earnings of full-time, salaried workers in the lowest-wage Census Region. The region that determined the changes specified in #1 is the South. The threshold is expected to rise to at least $51,000 with the first update on January 1, 2020.
- Total annual compensation requirement for highly compensated employees (HCE) will rise from $100,000 to $134,004, the annual equivalent of the 90th percentile of full-time salaried workers nationally.
- Nondiscretionary bonuses and incentive payments (includes commissions). These payments will now be allowed to satisfy up to 10 percent of the new salary level.
Read more on the Department of Labor website.
Hmm, interesting. So is this good or bad, overall?
Perfectly reasonable question. As with any legal change, there are a variety of opinions on the impact of this legislation. The intent of the legislation is to better protect employees by providing them a balance between hours worked and compensation, but for some employers – particularly smaller businesses – the new law could pose some serious financial challenges. Last summer, NPR released an article that included some great real world examples of how the rules could impact workers.
We’ll release a podcast in the near future discussing these regulations in greater detail and exploring some of the impact these changes could have and what we recommend employers do now that the final regulations are available. For now, we’d encourage you to continue reading up on the changes and to work on making sure you have your ducks in a row prior to December 1st! For advice tailored to your organization, please reach out to Xenium or an attorney who specializes in Wage & Hour law.
More reading:
DOL Finalizes Increased Salary Requirements for White Collar Workers – Tonkon Torp, LLP Blog
Final Rule: Overtime – DOL Website
Fact Sheet: Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees – DOL Website
Who Benefits from the New Overtime Rule – DOL Blog