The U.S. Department of Labor finalized sweeping changes to the Fair Labor Standards Act (FLSA) overtime rules, extending protections to millions U.S. workers.
The changes double the salary threshold for “white collar” exemptions from the current minimum of $455 per week, or $23,660 a year, to $913 per week, or $47,476 annually. Under the new rules, the salary threshold will automatically update every three years, based on wage growth over time. The final rules will become effective on December 1, 2016.
Exemptions exist for executives, professionals, administrative employees, outside consultants, and a few other classes of salaried employees — leading to occasional stretching of the definitions to avoid paying overtime pay.
The threshold value for overtime salary is currently $455 per week ($23,660 per year). In lower-paid retail jobs where the minimum wage is increasing, this can put employers in the perverse situation of having middle managers make considerably less per working hour than new hires. The threshold hasn't changed since a 2004 increase that raised it from $250 per week to $455. Starting in December 2016, the salary threshold to avoid paying overtime will move to $913 per week (an annual salary of $47,476).
With the time left before December 1, businesses should prepare, and consider the following planning opportunities which are especially important for small businesses, where the owner may also be in charge of hiring and human resource requirements.
Examine Current Pay and Classifications - understand employees’ compensation structure, classification and the rules around FLSA exempt vs. nonexempt status.
Monitor Employee Hours - employers should assess the hours that their employees work.
Compare the Costs of Pay - change a non-exempt employee from salary to hourly, and then pay them overtime as necessary. This can be most useful when an employee does not consistently work 40 hours per week, but it requires more attention be paid to managing their work schedule.
Impact on Pay Equity - In order to ensure that employees are being paid fairly and based on their job, do not make changes on a per-employee basis, but instead based on their roles.
Proactively Control Costs - establish workplace policies that diminish the amount of work that non-exempt workers perform outside of traditional working hours.