The Department of Labor has released the highly anticipated final regulations for overtime exemptions under the Fair Labor Standards Act. An estimated 4.2 million employees will be affected by the changes, so all employers should be looking at how their employees will be affected.
The elements of the final regulations are:
- Salary threshold changed to $913 per week. To be considered exempt from overtime an employee must make at least $913 per week ($47,476 per year), plus meet both the salary basis and duties tests.
- Highly compensated salary threshold changed to $134,004 per year. To meet the qualification for a highly compensated exemption the employee must make at least $134,004 per year, plus meet both the salary basis and duties tests.
- Automatic salary thresholds increase every three years. The salary thresholds will be adjusted every three years, with the first increase on January 1, 2020. It is estimated that thresholds will increase to $51,168 and $147,524.
- Salary basis test amended. The amendment to the salary basis test will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new salary threshold levels.
- Effective December 1, 2016. Employers must have all employees classified correctly by the pay period that includes December 1st.
Employers should spend the next several months preparing to make changes in order to comply with the new regulations. Here are some recommended next steps.
- Review current employees. Look at your current employees and determine who will be affected by the changes. If there are employees currently categorized as exempt that will not meet the new salary thresholds you’ll need to either change the employee’s pay or exemption status.
- Make sure to review your benefits. If employee benefits are determined by their exemption status you should review your insurance plans to determine if any changes are need.
- Review any policies that may be affected. Pay attention to policies that may need to be changed or revised because of employees being subject to overtime.
- Prepare a plan for communicating any changes. This change may be difficult for employees; affecting employee morale, engagement, and job satisfaction. A well thought out communication plan can help reduce some of the negative results these changes might have.
- Be prepared for questions. Employees will have plenty of questions about how changes will affect them. Be prepared and if necessary provide appropriate training.
Contact Amanda Dokter, HR Manager with Ketel Thorstenson, for more information or to schedule a consultation at (605) 716-8096.