After months of speculation, on May 18, 2016, the United States Department of Labor (DOL) issued new overtime pay rules for administrative or professional employees as required by the Fair Labor Standards Act (FLSA). The new regulation takes effect on December 1, 2016. It has been estimated that the new regulation with affect at least 4.2 million American workers.
Under the new rule, an employer is exempt from having to pay an employee overtime if his or her salary exceeds $913.00 per week ($47,476.00) annually, which is more than double the prior exemption threshold of $455.00 per week ($23,660.00 annually). In addition, an employer is now permitted to use up to 10 percent of bonuses, commissions, and incentive payments to satisfy the exemption threshold. The new rule has also incorporated automatic mechanisms to increase the exemption threshold every three years. As with the prior rule, certain categories of employees are exempt from these new overtime pay requirements, including teachers, lawyers, and doctors.
Failure to comply with the new overtime requirements could subject an employer to potential legal liability for back overtime, liquidated damages, and attorney’s fees. Needless to say, employers will need to look long and hard at payroll records to determine if a salaried employee will need to be converted to an hourly wage. At a minimum, employers will need to begin tracking the hours of salaried employees who earn less than $47,476.00 annually and have a plan in place for each salaried employee who earns below the exemption threshold.
Jeremiah N. Johns