What You Need To Know About New FLSA Overtime Exemption Changes

FLSA Overtime Exemption Changes

By now, you have heard about the new FLSA overtime exemption changes taking effect December 1st.  The rule increases the salary threshold for paid overtime from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  In plain language, if a worker makes less than the new threshold, they are eligible for extra compensation if they work more than 40 hours a week (regardless of their job title or description).  It is also important to note that the change is not impacted by the size of the employer.  If you pay employees, the rule applies to you.

Here are some key provisions per the Department of Labor:

“The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.”

Please note that some pay provisions will not change including outside sales, computer professionals, licensed professionals and certain retail employees who are paid on a commission.

What Does It Mean For Employers?

There are at least three options for businesses that employ exempt employees making less than the new threshold.

1. Raise salaries to keep affected employees exempt from overtime.
2. Pay time and a half for overtime for affected employees making less than the threshold.
3. Monitor time closely so employees do not work overtime.

There are unique challenges to all three of these options including time tracking, increased labor budgets and recognizing that “off the clock” work is compensable for hourly employees.

Web Payroll Can Help

If you have questions regarding the impact of the new rule, please contact us immediately.  Our payroll and time tracking solutions will help you stay compliant and give you peace of mind in this changing environment.

Please complete the form below and one of our payroll and time tracking experts will contact you.