Beginning on December 1, 2016, nearly 5 million employees will now be eligible for overtime compensation under new regulations issued by the United States Department of Labor, marking the first change in these laws since the 1970’s. Currently, executive, administrative and professional employees earning a salary of more than $23,660 per year are not eligible to receive overtime compensation when they work more than 40 hours a week. On May 18, President Obama announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically provide expansive overtime coverage to these categories of employees. The new regulations raise the minimum salary threshold to $47,476 per year, and automatically increase every three years to keep up with inflation. This means that executive, administrative and professional employees earning less than $47,476 per year will now be eligible for overtime compensation for any workweek in which they work more than 40 hours. In Massachusetts, it is estimated that his new salary threshold will triple the number of employees eligible for overtime, from 101,000 to 382,000.
The raised salary levels for exempt positions may seriously impact many employers, especially those with exempt management employees in the retail and restaurant industries. Employers generally will have three options to choose from when determining how to handle employees impacted by the new regulations.
- Raise salary and keep the employee exempt from overtime:Employers may choose to raise the salaries of employees to or above the minimum 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.
- Evaluate and realign employee hours and workload:Employers can ensure that workload distribution, time and staffing levels are all managed appropriately for their white-collar employees who earn below the salary threshold. For example, employers may hire additional employees.
For employees who are reclassified, employers must manage compliance with the full range of the FLSA’s record keeping and overtime pay rules. This includes training formerly exempt employees to ensure they understand what it means to now be a non-exempt employee. Additionally, considerable effort may be required to ensure that relevant timekeeping systems are modified to allow for full compliance. This effort should include properly tracking hours worked, “on call” and travel time.
The impact of these new regulations is yet to be seen, but employers of all sizes should consistently review their wage practices before the new regulations take effect to be sure they do not find themselves subject to a wage and hour lawsuit and the harsh provisions of the FLSA.