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By Shelby Lile
Attorney, Gust Rosenfeld
On May 18, 2016, the Department of Labor (DOL) announced its final rule updating overtime exemptions. The rule will affect white collar workers, or those who are currently exempt from the Fair Labor Standards Act’s (FLSA) overtime provisions under the executive, administrative, or professional categories.
Under the FLSA, employees do not have to be paid overtime wages for working more than 40 hours per week if they fall into an exemption. To be exempt under the FLSA in the executive, administrative, or professional categories (the "white collar" exemptions), employees must satisfy a salary test by making at least $455 per week ($23,660 per year) as well as a duties test.
The rule proposed last year set the minimum salary level at 40 percent of all U.S. employees. In the final rule, though, the level will be 40 percent of the lowest-earning geographic region. As a result, the minimum salary threshold will be $913 per week (equivalent to $47,476 per year for a full-year employee). This is much higher than the current $455 per week, but slightly lower than what the DOL proposed last year. This salary amount will be updated every three years starting in January 2020.
The rule will take effect on Dec. 1, 2016, meaning employers must be in compliance by that date. Employers have two main options for complying with the new rule. One option is to raise the employee's salary above the new threshold - this will allow employers to continue classifying the employee as exempt. The other option is to reclassify the employee as non-exempt. Under this scenario, the employee would need to be paid time-and-a-half for any overtime hours worked; employers could keep the employee's compensation the same but likely convert it to an hourly rate, or reduce the base salary or hourly rate in anticipation of the employee working overtime.
Start preparing employees now for these changes. Publicize your policies on time keeping and working overtime, or institute policies if none exist. Consider redistributing job duties to lower the chance reclassified employees will need to work overtime. Train employees who are reclassified on how to track their hours and request approval to work overtime, and train supervisors to make sure employees comply with any timekeeping system and do not work unauthorized overtime.
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