Last May, the Department of Labor (DOL) issued its new Fair Labor Standards Act (FLSA) overtime rule. The Final Rule focuses primarily on updating the salary threshold level for Executive, Professional and Administrative and Highly Compensated exempt employees.

The Final Rule becomes effective December 1, 2016 and:

  • Raises the salary threshold level for exempt employees from $455/week ($23,660 annually) to $913/week ($47,476 annually), the 40th percentile of earnings of full-time salaried workers.
  • Sets the annual compensation requirement for highly compensated employees to $134,004, the 90th percentile of full-time salaried workers.
  • Establishes a mechanism for automatically updating salary and compensation levels every three (3) years to maintain levels above the requisite percentiles.
  • Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new salary threshold level.

So what should you do now? Here are some steps that you should take which will help you remain legally compliant:

1. Identify those employees that need to be reclassified. Pay special attention to those who make under $60,000, as this is the compensation level at which many misclassifications tends to occur. In addition, this will hopefully preclude you from having to reclassify these employees every three years.

2. Design new compensation plans for those affected employees. If you reclassify an employee from exempt to non-exempt, it is imperative that you develop new pay plans. Employers need to compare the costs of giving pay increases to employees who are currently exempt from overtime, but make less than $47,476 per year, against the costs of reclassifying those employees as non-exempt and paying them overtime. Take into account the number of hours those employees are currently working in your comparison.

3. Review your wage and hour policies. If you find yourself reclassifying employees from exempt to non-exempt status, now is the perfect time to review your wage and hour policies. The most important part of this review is to make sure you have the appropriate time-tracking systems in place.

4. Communication is key! Make sure you communicate any and all changes with those employees that are affected by the reclassification and explain the business basis for your decision.  Make sure your employees are apprised of updates during every stage of the process.

5. Train your staff on new reclassifications. Make sure you train your newly reclassified employees and their managers. Ensure that your managers understand what could be considered a complaint that could trigger a retaliation claim under the FLSA reporting standards.

Understanding these new regulations is imperative and will help ensure that your business is compliant with both state and federal overtime laws; save money and protect your business.

Cheryl Brown is an attorney with the Business and Transactional practice group at Davis, Agnor, Rapaport & Skalny, LLC. For questions about this article or your own labor and employment law matters, please do not hesitate to contact Cheryl.