May 18, 2016: Important Update: New Federal Overtime Regulation
What has changed?
The minimum salary an employee must be paid to be exempt from overtime is being raised from $23,660 ($455 per week) to $47,476 ($913 per week). Ten percent of this amount may come from non-discretionary bonuses or incentive payments (such as commissions).
In addition to meeting the minimum salary requirement, employees must still be paid on a salaried basis, and pass a duties test to qualify for overtime exemption. The duties test has not been changed.
When are the changes effective?
December 1, 2016.
Do you need to take action?
If your company employs salaried exempt employees with salaries ranging from $23,660 ($455 per week) to $47,476 ($913 per week) it must evaluate the work being performed by these employees and develop a plan for compliance.
Options for Compliance:
If you have employees who are currently exempt from overtime, but make between $23,660 and $47,476 there are several paths, some of which may be combined, to bring your company into compliance with the new regulation:
- Pay overtime for all hours worked in excess of 40 in a work week at a rate of 1.5 times their regular rate of pay.[i] This option is attractive for employees making substantially less than $47,476, particularly those who rarely work more than 40 hours per week.
- Reallocate duties to other workers or eliminate duties so that the employee no longer works more than 40 hours per week. If this option is pursued, care must be taken to determine that the employee’s remaining duties still satisfy a duties test.
- Increase salary to at least $47,476. This option is useful for employees who make close to this amount but frequently work in excess of 40 hours.
- Reduce salary and pay overtime for all hours worked in excess of 40 in a work week so that the employee’s total compensation is similar to the salary paid prior to the change. This is an attractive option when budget concerns are present, and reallocation of duties is not a realistic solution.[ii]
Regardless of which option works best for each of your employees, your business must now comply with the FLSA recordkeeping requirements for tracking hours worked by each individual who is paid a salary less than $47,476. If such an employee works a regular schedule, it is sufficient to keep a weekly record of that schedule, and simply note when there is a deviation from it. If the employee’s schedule varies, hours worked should be recorded on a daily basis.
Don’t forget the duties test:
Satisfying the minimum salary test is only one requirement for a salaried employee to be exempt from overtime. The tasks that the employee actually performs (as opposed to their job title or what it says on their job description . . .) must also satisfy the executive, professional or administrative duties test, or qualify for one of the job-specific exemptions, such as computer employee, outside sales or highly compensated employee.[iii]
How We Can Help:
Roots HR can assist your business with this transition in several ways. We are available for a custom consultation to review the positions affected by the change and assist your business in designing the most effective plan for compliance given the unique needs of your business. We will also be presenting a seminar several times over the next few months which will equip your critical staff with the information they need about the change to guide your company safely to compliance.
[i] For salaried workers, the regular rate of pay is generally determined by dividing their weekly salary by the number of hours they typically work. However, this calculation must be made on a case-by-case basis, as there are exceptions to the general rule.
[ii] Remember that Missouri law requires at least 30 days prior written notice of a reduction in rate of pay or employers are subject to a $50 fine per employee. Notice must be mailed to each affected employee (or posted in the workplace – not recommended!) and must indicate the amount of the wage reduction and its effective date.
[iii] Also effective December 1, 2016, the qualifying salary to be highly compensated will be $134,004 per year (increasing from $100,000).