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New Overtime Standards and What it means for Your Business

In a few short weeks, the Department of Labor’s (DOL) final rule updating overtime regulations will take effect.  These changes to exemptions in the Fair Labor Standards Act (FLSA) begin on December 1, 2016 and are expected to extend overtime pay protections to over 4 million workers in the first year of implementation.  In Pennsylvania, the number is roughly 185,000 workers.

Often referred to as the “White Collar” final rule, the plan significantly increases the minimum salary level necessary for executive, administrative and professional workers to be classified as exempt from overtime pay.

Final Rule Key Points
The overtime final rule lays out three key provisions:

  • The exemption threshold rises to $47,476 in annual salary – up from the current $23,600. This means that employees who are salaried and make less than $47,476 will be required to be paid for their overtime.
  • The threshold for highly compensated employees (HCE) rises from $100,000 to $134,004.
  • Required salary levels will be automatically updated every three years, beginning on January 1, 2020.

The final rule also amends the salary basis test. For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Are Non-Profits Exempt?
The DOL has released special guidance for non-profit entities, which will exempt some organizations.  If a non-profit has business revenues of over $500,000 per year, then it must comply with the FLSA’s minimum wage and overtime requirements.  However, income from charitable activities, such as donations, is not counted towards the $500,000 requirement.

Even if a non-profit does not meet the coverage threshold, certain employees may be covered based on the nature of their work.  Employees who engage in interstate commerce or whose work involves the movement of persons or goods across state lines are covered by the FLSA.

Are Small Businesses Exempt?
It’s possible, but not likely.  Using the same threshold for non-profits, if a small business has sales of at least $500,000 annually, it is subject to the FLSA rules.  Additionally, certain types of entities must follow FLSA regulations regardless of their annual sales.  These include hospitals, residential care facilities for older adults or persons with disabilities, schools and preschools, government agencies and institutions of higher learning.

Result for Employers
The end result of the DOL’s overtime final rule generally means higher wages for employees, higher wage cost to employers and increased risk to employers in wage-related cases.  Employers who do not comply with the new minimum standards will open themselves up to possible DOL investigations and private litigation.

In order to comply with the new standards, employers can:

  • Pay time-and-a-half for overtime work
  • Raise worker’s salaries above the new threshold
  • Limit worker’s hours to 40 per week
  • Some combination of the above

For more details on the final ruling and what it means for your business, click on the latest website posting by the DOL: https://www.dol.gov/WHD/overtime/final2016/

Article compiled by Elizabeth Bershok, for additional information please contact Bob Firely at rffirely@herbein.com.