Employment Law Update!
Changes to FLSA Overtime Regulation
What to Know & How to Prepare
UPDATE: The Final Rule was released this morning, after this document had been prepared. The information contained has been updated to reflect the key elements of the new regulation. The information below provides valuable guidance. We will review the regulation and keep you updated with details regarding the final rule over the next week.
On March 13, 2014, The Department of Labor was directed by President Obama to update the FLSA overtime regulations in order to find ways to modernize and simplify it while ensuring that the intended protections of the FLSA be fully implemented. The DOL issued the proposed regulation on June 30, 2015 and it was listed in the Federal Register on July 6, 2015.
The comment period for the proposed regulations has ended and was sent to the Office of Management and Budget on March 14, 2016. The regulation is pending review in the final rule stage with the OMB and it has been anticipated to be released between May 15 and early summer.
On February 9, 2016 Congress expressed significant concerns with the overtime proposal and asked the DOL to reconsider moving forward with the rule as drafted. On March 17, Congress introduced the Protecting Workplace Advancement and Opportunity Act which would require the DOL to conduct a comprehensive economic analysis to determine how the changes would affect employers and how to minimize the impact. This bill is in the beginning stages of the legislative process and may not be passed before the OMB releases the final rule. If the regulation comes out after May 16, it could still be challenged by Congress and subject to the congressional review act.
Unfortunately, we don’t have a crystal ball that tells us what is going to happen and when/if this regulation will be released. However, we are realists and recommend that all employers take some time to look at the way your employees are currently classified to determine the impact that these changes could have on your organization.
What to know
The proposed regulation will impact employees and employers across every industry.
- Salary threshold will increase to the 40th percentile of weekly earnings in the U.S. This amount is projected to be $970/week or $50,440/ year, up from $455/week or $23,660/year. (Final Rule: $913/week, $47,476)
- The Salary Level will raise automatically on an annual basis, either based on inflation or percentiles of US earning levels of full-time salaried employees. (Final Rule: Increase every 3 years to maintain level at 40th percentile in lowest-wage census region)
- In order to qualify for the Highly Compensated Employees (HCEs) exemption, the annual compensation level will increase to $122,148/year from the current $100,000/year. (Final Rule: HCE Exemption $134,004/year).
- While there has been no mention of changes to the duties test, it will still need to be used to determine if employees earning a salary above the threshold qualify for Exempt status. (Final Rule: No Changes to the Duties Test)
How to Prepare
It is estimated by the DOL that 70 percent of employers are violating the FLSA in some way and the department has stepped-up enforcement. It is recommended that all employers use this pending regulation as a time to audit their exempt/non-exempt and contractor classifications to ensure they meet the criteria as outlined in the duties tests.
Take these steps now to reduce your exposure when this regulation is passed (Final Rule: Effective December 1, 2016)
- Review the HRP Exempt vs Non-Exempt Toolkit to help you determine if your employees are properly classified.
- Determine if any Exempt employees fall below the $50,000 salary threshold.
- Decide for which positions you are willing to increase the salary above the threshold.
- Determine the following for employees that may need to be reclassified
- What tasks do they perform on a weekly basis and how many hours do they really work?
- Are there any job duties that can be redistributed or eliminated to reduce their hours worked?
- Are there any functions that can be outsourced?
- Outline your communication plan and strategy for implementation.
We could be a day away or 60-days away from changes to the FLSA Overtime Regulations. (Final Rule, Released May 17, 2016; Effective Date December 1, 2016).
All employers are recommended to audit their risk to ensure they are ready for a change that the Society of Human Resources has referred to as “imminent”. HRP membership provides 24/7 online access to valuable resources that will help keep employers compliant.
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