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DOL Issues Final Regulation on FLSA Overtime Changes

There’s both good news and bad news for employers in the final rule issued on May 17, 2016.  The good news is that compared to the proposed regulations, the DOL did address some employer concerns in the final regulation.  For example, a key issue for many employers, particularly small to mid-sized ones, was that the duties test for the executive, professional, and administrative exemptions would be significantly modified.  It was not changed at all from the current standards.  Also, the originally proposed salary test was set at approximately $50,440 per year,, and now is set at $913 per week or approximately $47,476 per year.

The bad news is that the salary test rises from its current $455 per week (approximately $23,660 per year) to $913 per week, more than double. Advocates for making these changes argued that the old $455 per week threshold was established over 35 years ago, and appeared to have prevailed not only in raising the floor for the salary test, but in also indexing it on a three-year basis to match the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).

Further, the salary test for the highly compensated exemption from the FLSA is also raised in the final regulation from $100,000 per year to $134,004, which will also be indexed at the 90th percentile of full-time salaried workers nationally.

The effective date for all of the changes will be December 1, 2016.

While there may be state versions of the FLSA to take into account, an employer has four options in order to comply with currently exempt employees who would now become non-exempt for the new federal rules on December 1st due to their weekly salary:

  1. Begin paying overtime for all hours worked over 40 in a defined workweek.  Under existing FLSA rules, all employers should have already established their workweek.
  2. Raise affected employees’ salaries over the new threshold.
  3. Limit affected employees’ work hours to no more than 40 per week.
  4. Some combination of the above.

In any event, now is the time to start planning on how to deal with these changes. While there is an effort in the employer community to pressure Congress to try to nullify the changes made by the final regulation, the chances of passage with a veto-proof majority in both Houses this term is pretty slim.

Posted on May 18, 2016 by Gary B. Kushner, SPHR, CBP, President and CEO

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