The Department of Labor Announces Major Changes to Overtime Pay Rules and Employee Classifications

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

The new rule will 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.

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 $$47,476 per year ($913 per week) 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.

Up to 10% of this income may come in the form of non-discretionary bonuses, incentive pay, or commissions, as long as that portion of the compensation is paid at least quarterly. Quarterly catch-up payments can also be made by employers or less.  The rule also establishes an automatic salary adjustment every three years to allow for inflation.  The requirement will be set to the 40th percentile of weekly earnings among full-time salaried employees in the country’s lowest income region. The duties tests for white collar workers remain the same.

This is 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 classification of employees 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 rule takes effect on December 1, giving employers very little time to make major adjustments in terms of budgets, payroll activities, employee duty assignment and 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.

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 final rule can be found here.  The DOL will also be hosting a series of webinars on the new rule.

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 visit www.qualitybsolutions.net.