FLSA Exempt Salary Rule Effective December 1st 2016

 

GLA wants to keep everyone notified of an upcoming change which may affect current and/or future employment or hiring practices.  This is a significant change in the manner in which employees are classified as “salary” vs. “hourly” from a Department of Labor standpoint!

What Is The New Overtime Rule?


GENERAL:

 

  • Workers who do not earn at least $47,476 a year ($913 a week) must be paid overtime, even if they're classified as a manager or professional

  • The Department of Labor will increase the above amount every three years. Based on current projections, the threshold is expected to rise to ~$51,000 on January 1, 2020

  • Employers cannot avoid overtime pay by paying out wages on an uneven basis.  Gross pay must be at least $913 per week (“the salary test”) whether paid, weekly, bi-weekly, semi-monthly, monthly or quarterly

  • Additionally, this updates the salary test to allow employers to include non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. These bonuses must be paid at least quarterly


RETIREMENT PLAN CONSIDERATIONS:

  • Workers participating in a 401K/SIMPLE/SEP plan that currently classify as HCEs (Highly Compensated Employees) may return to the standard worker classification as the total annual compensation requirement increases from $100,000 to $134,004 per year


OPTIONS FOR EMPLOYERS:

After determining how your workforce is affected by the new rule, employers have some options for adjusting their compensation practices, according to the Labor Department. The options are:

  • Raise salary and keep the employee exempt from overtime: Employers may choose to raise the salaries of employees to the salary level to maintain their exempt status, if those employees meet the duties test (that is, the duties are truly those of an executive, administrative or professional employee). This option works for employees who have salaries close to the new salary level and regularly work overtime

  • Pay overtime in addition to the employee’s current salary when necessary: Employers also can continue to pay their newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than 40 hours in a week. This approach works for employees who work 40 hours or fewer in a typical workweek, but have occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods. Remember that there is no requirement to convert employees from salaried to hourly in order to calculate their overtime pay

  • Reclassify employees as hourly: Another option is to reclassify the employees as hourly and pay for each hour worked at a regular hourly rate and at overtime rate for the hours exceeding 40 in a work week

  • Evaluate and realign hours and staff workload: This might include removing some duties from a group of employees so that they can complete their work in 40 hours a week and transferring those duties to another group who have had their salaries increased to remain exempt

 

CLICK HERE to download a Word Document with examples on how to address the change with any of your affected employees.