December 1: It’s a date that seems to welcome in the holiday spirit in addition to indicating how close we are to the end of the year. But it’s also a huge day for employers nationwide as the Department of Labor’s “final rule” goes into effect updating overtime regulations.
The rule effectively doubles the minimum weekly salary threshold under which salaried employees become eligible for overtime when their work week exceeds 40 hours. The threshold – now at $455 per week or a salary of about $24,000 a year, will rise to $914 a week, or about $47,500 a year.
The ruling came about in part due to the fact that, under current rules, salaried managers could end up receiving less in their paychecks than the people they supervise (hourly workers) because they weren’t eligible for overtime. This was particularly true in lower-paid retail sectors. As the minimum wage has increased, many salaried middle managers’ hourly wages were ending up less per hour than the hourly wage of new hires. The threshold hadn’t changed since a 2004 increase (raising it from $250 per week to the current $455).
President Obama, looking for a way to ensure managers receive equitable pay, asked the Department of Labor in 2014 to update those regulations that delineated which salaried workers should be protected by the Fair Labor Standards Act’s (FLSA) overtime and minimum wage standards. The Department of Labor published the final rule on May 18 and it should affect up to 4 million U.S. workers within a year of implementation.
Generally, salaried employees who make less than the new threshold must either be paid time and a half for any hours worked in a week in excess of 40 hours, or have their salaries raised to the new threshold. Employers also have the option (in the case of a salaried employee who routinely works overtime and whose salary is under the threshold) to give the duties that result in employees working overtime to other workers, thus ensuring that the salaried employee is not working more than 40 hours a week.
The new ruling in no way changes the duties requirements for the FLSA’s overtime pay exemptions. Generally, employees affected by the final ruling are those who perform executive, administrative or professional duties who now earn between the current minimum threshold and the threshold that goes into effect on December 1.
Some businesses may elect to reclassify eligible salaried workers to hourly workers, or move them from a salaried exempt to a salaried non-exempt classification. However, many companies within the service industry (retail and hospitality in particular) have shown concern about the final ruling, believing that reclassification from salary to hourly wages may take away from the perks many salaried works have previously enjoyed such as higher-status job titles, benefits and job flexibility.
Check out the Department of Labor’s final ruling FAQs for more details regarding the changes you can expect.
The actual impact on businesses across the country can’t be fully known until after December 1, but there is a chance your company’s staffing budget could rise considerably. Preparation, therefore, is key. Here are some steps you may want to take now:
As with any change to employee compensation or benefits, whether it be solely a management decision or a change in federal law, your managers and their team members are going to face a learning curve.