Have You Heard About the New Overtime Ruling?

By Olga V. Tua, MBA, PHR, SHRM-CP

In July 2015, the U.S. Department of Labor (DOL) submitted a proposed ruling to update and revise the Fair Labor Standards Act (FLSA) as it refers to the exemption for minimum wage and overtime for exempt vs. non-exempt employees. In its ruling, the DOL is pursuing to update the salary level to protect employees who might be under a misclassification and/or not being paid accordingly. On Wednesday, May 18, 2016, the DOL released the new requirements outlining the final ruling in the updated overtime rule.

Under the FLSA, most employees are required to be paid at least the federal minimum wage for all hours worked, as well as get paid for overtime work at a rate of one and one-half times the employee’s regular rate for all hours worked over 40 hours in a workweek. Additionally, the FLSA covers an exemption for both minimum wage and overtime for employees that fall into a specific classification. To qualify for the exemption under this ruling, the employee must meet two criteria, one being their job duties and another related to a salary minimum requirement of no less than $913 per week. Although the newly updated ruling makes impactful changes to the salary minimum requirements it did not alter the job duties testing criteria.

The new overtime rules increased the threshold for minimum salary from $455 per week or $23,440 annually to $913 per week or $47,476 (it also raised the highly compensated threshold from $100,000 to $134,004). In addition, the threshold will be increased every three years. The deadline to comply is December 1, 2016 giving employers more than six months to prepare.

According to the Department of Labor website, an estimated 4.2 million workers will be impacted by the new overtime rules but the effect of these changes will not be felt with such an impact in California as in the rest of the nation. California is known to always have stricter overtime laws and before the new ruling it had a higher salary threshold ($41,600 annually) over the rest of the country. In addition, California requires that employers pay time-and-a-half when eligible workers reach eight hours in a day even if they do not exceed 40 hours in a week.

The Los Angeles Times reported that the Obama administration estimates that the change could impact more than 400,000 California workers, so it is recommended that employers understand the impacts of these changes to their organization and establish best practices to address any potential risks they may experience in correlation to the new criteria. Below you will find a few initial steps you can take to ensure you are in compliance for the December 1st deadline.

1. Verify salary ranges for any current exempt employees you have that are within the determined threshold of salary 2. Decide if, for your business, you will raise salaries to meet the new ruling minimum or if you will move them to an hourly rate 3. If you decide to move them to an hourly rate how will you calculate that in accordance to what you have defined as your work week 4. If you have employees that will be affected, decide on a communication strategy

For employers, deciding whether to raise salaries or change classifications will require careful consideration based on aspects of their business such as position, company size and culture. Regardless of the decision outcome, it is important for employers to take a proactive approach and have discussions now about the potential impact to employees and operations. Because of the potential impact on budgeting, staffing, and resources in 2016, it is imperative to have a plan in place by the compliance date of December 1, 2016.

Olga Tua is Director of Market Development at AlphaStaff.

CACM offers Business and Affiliate members its Professional HR and Benefits Solutions Program through an alliance with AlphaStaff, a leading provider of HR outsourcing services since 1997.

AlphaStaff can assist program participants in navigating through the complexities of topics such as the FLSA and provide support to employers in understanding the complexities of employment practices. Managing the intricacies of minimum wage, overtime and exempt vs. nonexempt is an area that can seem simple but – if mismanaged – can lead to costly legal exposure.

Through certified human resources practitioners and skilled professionals, AlphaStaff is able to assist employers to minimize these types of exposures, while still allowing the employers to make the decisions that make sense for their operations. At the end of the day, AlphaStaff’s experts do the heavy lifting by providing compliance guidance and allowing you to focus on your business.

To find out how AlphaStaff can provide you with tools and services to educate you on employment practices that can affect your business, please reach out to our Regional Vice President of Strategic Business Development – West Coast Region, Harry Glazer, at hglazer@alphastaff.com or at 760.466.8140.

NOTE: The information contained in this article is not legal advice or a substitute for legal counsel.