Major Proposed Changes to Overtime Pay Rules and Employee Classifications

The U.S. Department Labor (DOL) has been working on dramatic changes to regulations surrounding the overtime provisions of the Fair Labor Standards Act (FLSA). This proposed rule change will likely have a major impact on a large number of employers.

As originally proposed, the new rule will nearly double the income level under which employees must be classified as non-exempt and, therefore, must be paid overtime for any hours worked over the standard 40-hour work week.  Pending feedback from the comment period, this new rule is set to take effect this fall.

Under the current rules, only workers earning $23,660 or less automatically qualify for overtime.  Salaried workers who fall above that limit are eligible for overtime pay provided the do no fall under the so-called “EAP exemption,” which applies to workers classified as executives, administrators or professionals.

Under the new rule, all salaried workers, regardless of title or duties, are eligible for overtime if they earn $50,440 or less.  The White House estimates that this change will effectively give around five million workers a raise while strengthening overtime protection for another ten million.

This will be the first time the overtime ceiling has been raised since 1975, when the $23,660 salary covered 61 percent of workers.  Proponents argue that this change is necessary to keep pace with inflation and eliminate potential abuses by employers who misclassify employees or effectively force those working long hours to work for less than the minimum hourly wage.

While the DOL heralds this as a major win for working Americans, this rule change will send huge ripples through employers’ cost to do business and will require a major shift in payroll and HR processes, as well as retraining employees to avoid doing work outside of business hours.

The comment period officially closed in September of last year and businesses are in a holding pattern, waiting to see how the final regulation changes will impact their businesses. The DOL anticipates that it will announce the final changes in July 2016, with changes effective no later than September 2016 – giving employers just 60 days to make major adjustments in terms of budgets, payroll activities, employee classifications, time capture systems and making the cultural changes necessary to ensure that employees accustomed to working after hours limit their activities to set work hours.

QBS is following these developments closely and will continue to keep you abreast of any related news. However, it is critical that employers educate themselves on the requirements and ramification of this rule and take action now to ensure that they have systems in place to address this important and significant change.

A fact sheet on the new rule can be found here: https://www.dol.gov/whd/overtime/nprm2015/factsheet.htm

With so many daunting tasks required in a very limited time period, some employers will want to bring in extra help to aid in the changeover and ensure compliance one the rule goes into effect.

PEOs like QBS are positioned to provide the guidance and expertise needed to establish a viable and cost-effective plan of action, as well as the extra sets of hands that may be required to begin implementation.

If you have questions about what’s happening or would like to learn more about how we can help, please contact us today via phone or at info@qualitybsolutions.net.