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Final Rule – Overtime Regulations
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May 19, 2016

Today the federal Department of Labor (DOL) announced the final rule updating The Fair Labor Standards Act (FLSA) overtime regulations. What does this mean to employers?

The FLSA determines whether positions are classified as exempt or non-exempt from overtime requirements. Generally, to determine whether a job is classified as exempt or non-exempt one must first analyze if the job meets two tests:

  • The salary threshold test, currently $23,660 annually or $455 per week; and
  • The duties test – an analysis of the duties of the job, and if those duties meet any of the “white collar exemptions – executive, administrative, professional, outside sales, computer or the highly compensated exemption. (Please note that the State of CT does not recognize the “computer” or “highly compensated” exemptions, and employees must be eligible for the exemption under one of the other categories to qualify).

As announced today:

  • The new salary test is increased to $47,476 annually or $913 weekly, and is set at the 40th percentile of earnings of full-time salaried workers in the lowest wage Census Region, which is the Southern Region
  • The Highly Compensated test, currently $100,000 annually is now $134,004 -90th percentile of full-time salaried workers nationally
  • There is now a mechanism for automatic increases every three years to maintain the 40th or 90th percentiles – next scheduled for January, 2020
  • Non-discretionary bonuses and incentive payments such as commissions can now be included to satisfy up to 10% of the $47,476 – previously these were not included
  • The Effective date for implementation of the new regulations is December 1, 2016

What does this mean for employers?

In preparation for the December 1 deadline, employers should immediately begin to:

  • Conduct an analysis of all jobs and employees to determine how each compare to the new rule
  • Conduct a financial analysis to determine and decide if employees will maintain their exempt status by receiving an increase to meet the new $47,476 threshold, or re-classify employees to non-exempt and therefore be eligible for overtime
  • Conduct a duties test of all jobs – this is a great time to do so to ensure that none of your jobs and therefore employees are not misclassified as exempt or non-exempt
  • Create a communication strategy and plan to implement this with your organization, especially those employees potentially affected. The communication plan is especially critical due to the possible effects on morale for the change from exempt to non-exempt, as many employees equate this to “being demoted”.

KardasLarson is currently working with a number of employers in preparing for this new rule, and is prepared to assist you with all aspects of this process.

Nick Daukas
With 25+ years of HR experience Nick specializes in ER, OD, Recruitment and Legal Compliance. He has an MBA and holds advanced HR certifications SPHR, SHRM-SCP.

Lois Krause

Lois Krause

Author

With 25+ years of experience, Lois Krause's HR strengths include labor law, employee relations, OD, and performance management. Lois has advanced HR certifications.

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