The Department of Labor has issued new regulations, effective December 1, 2016, that may affect millions of salaried employees who are currently “exempt” from the overtime pay rule of the Fair Labor Standards Act (FLSA).

Current Criteria to Be Considered Exempt From Overtime

  • Paid a fixed salary
  • Paid more than $455 per week ($23,660 per year); and
  • Perform executive, administrative, or professional duties as defined by the FLSA

With the New Rule, the Salary Level Will Go Up

  • Effective December 1, 2016, a salaried employee must be paid more than $913 per week ($47,476* per year); if they are below that amount, regardless of whether they meet the other two criteria, they must be paid overtime of one-and-one-half times their hourly rate, for all hours worked over 40 in a week
  • There will be automatic updates to this threshold every three years, beginning on January 1, 2020
  • The exemption for Highly Compensated Employees has been increased from $100,000 to $134,004 per year.
  • *Up to 10% of the salary can come from non-discretionary bonuses (i.e. bonuses for meeting fixed goals), incentive payments and commission, as long as you pay at least quarterly.

Get the bonus content: Checklist to Stay in Compliance with the New OT Law

Employer options

  • Increase the salary of an exempt, salaried employee to the new salary level to avoid overtime pay
  • Pay overtime as needed
  • Reduce or eliminate hours worked over 40 in a week
  • Reduce pay and give more hours so salary remains constant
  • Some combination of the above.

Tips for Employers

  • If you have salaried employees who will be eligible for overtime, you can keep them on a salary and still pay them overtime for hours over 40 in a week
  • Compensatory time cannot be used instead of overtime pay if the employee is otherwise eligible for overtime
  • For overtime eligible employees, the employer will have to keep track of daily hours worked.

Need help formulating a strategy?  Contact us for help.

Get the bonus content: Checklist to Stay in Compliance with the New OT Law

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