In May 2016, the Department of Labor released its final ruling on a monumental revision to the Overtime Exemption Regulations of the Fair Labor Standards Act (FLSA.) These rules come into effect on December 1, 2016. This article has been created to provide a quick reference to the rules and terms, a summary of the changes, and a resource for employers to ensure their ongoing compliance.
Exempt employees, because of the type of work that they do and their rate of pay, are not eligible for overtime pay for hours worked in excess of 40 hours in one work week. Non-exempt employees must be paid at least time and a half for any hours worked in excess of 40 in a work week. This rule is not new. The changes that have been made are regarding the minimum rate of pay for an exempt employee.
What ARE the rules?
In simple terms, the conditions for exempt status, from December 1, is as follows:
- The employee must work in an administrative, executive or professional capacity
- The employee must be paid a salary of at least $47,476 per year (this has increased from $23,660 previously)
Employees who do not earn at least $47,476 per year (or $913 per week) must be paid overtime, regardless of if they are classified as a manager or professional.
The salary threshold will be updated every 3 years to keep in line with inflation. The first update will be on January 1, 2020.
Some frequently asked questions:
I have employees in this category, what do I do?
You must either increase this employee’s or these employees’ salary or salaries to meet the new minimum, or pay this employee overtime for hours worked in excess of 40 in one work week.
What is a “work week”?
An employer may determine its own standard work week for payroll purposes. The week must be a consist of seven 24-hour days in a row. For example, an employer may select its work week to run Monday through Sunday, or Sunday through Saturday. The employer cannot change this work week once established, and must inform all new employees of the boundaries of the week.
Can I use bonuses or commissions as a substitute for a base increase to make up the minimum?
Nondiscretionary bonuses and incentive payments can be used to satisfy up to 10% of the salary test requirement. Should an employee not earn enough including nondiscretionary bonuses to meet the salary test requirements in any one quarter, a catch-up payment OR overtime pay for the preceding quarter will be required.
Where do I go to get more information, or to get help?
Clarity can provide a review of your HR files and practices, as part of our HR Services offering. Please contact us to get a quote or discuss how we can help you.
Candace Monroe, Clarity Enterprises
Clarity offers a full range of HR solutions to suit individual needs and budgets. From assistance with recruitment through a full-service HR department-on-demand, outsourcing your HR function allows you to concentrate internal resources on your core business, and look outward for expertise.