Employment Alert: "The New Overtime Rule Affects 4 Million Workers - Are Yours Included?"

Publication
05.19.2016

Yesterday, the Department of Labor published its final rule updating the Fair Labor Standard Act's overtime regulations.  The new regulations will extend overtime protection to millions of employees.  As a result, employers must re-evaluate their exempt employees to determine whether they are now nonexempt under the new regulations.

The Final Rule

Most employers have employees who are classified as exempt from the overtime rules under the executive, administrative, or professional exemptions.  Under the new rule, these employees must earn at least $47,476 a year ($913 a week) to meet the requirements of these exemptions.  This is a significant jump from the current requirement of $23,660 a year ($455 a week).

The threshold for the highly compensated employee exemption is also increasing, from $100,000 to $134,004.  Many employers take advantage of this exemption because the applicable duties tests are less strenuous. The salary thresholds for all of these exemptions will now automatically increase every three years.

Notably, the new rule does not change the corresponding duties tests for the exemptions.  These tests require that in addition to the minimum salary requirements, the employee's actual job duties qualify the employee to be classified as exempt from the overtime rules.

Overtime Requirements

If employees cannot be classified properly as exempt, they must receive overtime pay for every hour worked over 40 hours in a workweek at a rate of one and a half times their regular rate of pay.  Calculating the regular rate of pay can present challenges.  For example, if the employee receives non-discretionary bonuses or certain types of commissions, those amounts must be included in calculating the regular rate of pay for purposes of determining the amount of overtime owed to the employee.   

Recommendations

The new rule takes effect on December 1, 2016.  Employers need to identify which employees need to either be reclassified as nonexempt or given a higher salary.  Changes will need to be made to compensation plans, and affected employees should be notified in advance if their compensation structure is changing.  Employers should also consider revising their overtime policies to reduce or eliminate overtime hours.  However, as before, employers must pay their nonexempt employees for all hours worked.

Fair Labor Standards Act lawsuits are on the rise, and the Department of Labor continues to randomly audit companies to see whether they are in compliance with the wage and hour regulations. Taking steps now to ensure compliance with the new rule will likely save employers significant time and money in the future.

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