The New Overtime Rules are Here. What it Means to Your Business

By: Christina M. Reger 

The Department of Labor (DOL) has announced the new overtime rules (amendments to the Fair Labor Standards Act (FLSA) to be technical). 

After receiving more than 270,000 comments to the proposed regulations published last July, President Obama and the DOL announcedthe new rule yesterday. The Final Rules focus primarily on increasing the salary levels for Executive, Administrative and Professional workers to be considered “exempt” from the overtime rules. 

The DOL has summarized the major changes as follows: 

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. 

4. 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. 

Does this apply to my business? The FLSA applies to generally to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more. In addition, employees of certain entities are covered by the FLSA regardless of the amount of gross volume of sales or business done. These entities include: hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies. 

What does this mean for my business? If you have salaried employees between the current overtime threshold of $23,660 and the new threshold of $47,476 you must examine these positions and you will likely need to re-classify these positions as hourly. If these people typically work more than 40 hours per week, keep in mind that you will have to pay them time and a half for hours over 40. 

Do I have to take action now? The sooner the better. Based on the number of employees / types of employees that you have, you may need to restructure your workforce, hire additional people or change the way in which your company does business. 

Also, keep in mind that while these rules were intended to benefit the American worker, changing employees who previously were salaried and now telling them they need to punch a time clock, could have a significant impact on employee morale. 

But I don’t have time to read all of that! Where can I get help? If there was ever a time to consult with an employment lawyer, particularly one that works with small and mid-sized businesses, now is the time. I am offering one- and two-hour consultations to assist businesses is understanding how to implement the Final Rule for their business. Please contact my office to set up an appointment. 

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