Preparing for the 2016 Changes to Overtime Regulations

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.

A Brief History

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.

Who is Affected by the 2016 Changes in Overtime Regulations?

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.

Details of the Change

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.

Impact on Companies: How to Prepare

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:

  • Make sure you keep accurate records of all hours worked by employees who will be moving from exempt to non-exempt. This should include work that’s done off-site and/or outside of normal business hours. For example, in some instances, traveling or being on call counts as being on the clock.
  • Evaluate, adjust and/or create verification processes for the hours employees record.
  • Be ready to answer lots of questions and make sure your managers have the answers. Employees undoubtedly will talk to each other about compensation, who’s been moved from exempt to non-exempt, and so on. In no way should you try to squelch these conversations: federal and state laws allow them.
  • That said, it’s time now to create communication strategies your firm will use to discuss these changes and broadcast them among your workforce. Inevitably, your employees will have questions, especially if they’re being reclassified.

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.

Synergy delivers a comprehensive HR management solution to handle changes in overtime regulations and other HR compliance topics. For additional information, download our complimentary Ultimate HR Compliance Guide today.

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