New Overtime Rules

Business meeting

Employer and employee alert

On May 18, 2016 President Obama and Labor Secretary Perez announced new Department of Labor overtime regulations that go into place December 1, 2016. The Federal Labor Standards Act (FLSA) has information everyone needs to know to comply with these new rules.

The changes

  • Any worker making $47,476 or less must be paid overtime for hours worked in excess of 40 in a given week. This is true whether the employee receives a salary or hourly pay. The overtime rate must be at least time and one-half.
  • Up to 10% of the compensation amount can be in the form of nondiscretionary bonuses or incentives.
  • Highly compensated employees (HCE) is now defined as $134,004 or higher. The old rate was $100,000. Those above these income levels are exempt from the overtime rules as long as a minimal duties test is met.
  • The new rule is effective December 1, 2016
  • The wage amount will automatically reset every three years. The next change will be January 1, 2020.
  • Actual implementation documentation has not been published in the Federal Register. Final regulations could still change slightly.

What this means to you

  • There will be change. Any salaried employee who makes less than the $47,476 amount will see a change. It could take any of the following forms:
    move from salaried employee to hourly employee
    a raise to $47,476 or more
    move from a flexible work-week to a scheduled work-week to comply with a strict 40 hour work week
    increase in the tracking of hours
  • Flex hours a thing of the past? Your work hours must now be tracked. Because of this, working from home and working flexible hours is more difficult. While the legal burden of reporting is placed on employers, employees will now need to track their work time.
  • Required reporting. While the Department of Labor provides flexibility on how employers track hours, the standard of reporting will probably be tested through legal action. Here are some of the options per the Department of Labor.
    • Time clock. Have everyone track their hours by punching in and out.
    • Personal recordkeeping. Have each employee track their daily hours and report them to the employer each pay period on a timesheet.
    • Hard scheduling. Publish a schedule of hours for each employee. Record any deviation from the schedule and place the documentation with payroll records.
      Note: Please refer the U.S. Department of Labor Fact Sheet #21 for a summary of the FLSA’s recordkeeping regulations.
  • More than a raise. While many are touting this as a potential raise for more than 4 million employees, many believe two other objectives are in play. The first is to broaden employment. Employers may hire additional people to avoid the necessity of paying overtime. The second possible objective is to help re-establish a work and leisure balance.

No matter what the pundits say, the true impact of this change is unknown. The only certainty is that all employers now face additional administrative duties and potential legal action for non-compliance. This includes businesses, schools, and non-profit organizations. What is important at this is to be aware of the upcoming change and plan for it.