The Department of Labor issued the long-anticipated final overtime rule May 18 and included an exempt employee threshold of $47,476—less than the proposed rule’s $50,440 but slightly more than double the old/current threshold of $23,660. The impact of the increase will escalate in coming years; the rule included a hike every three years in the minimum salary for exempt employees. The automatic increase will be based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region, the South. Employers must comply with the new rule by Dec. 1, 2016—a much longer time to comply than the minimum 60 days required of final rules.
The Fair Labor Standards Act (FLSA or Act) guarantees a minimum wage for all hours worked during the workweek and overtime premium pay of not less than one and one-half times the employee’s regular rate of pay for hours worked over 40 in a workweek.
What Is The New FLSA Overtime Rule?
The rule extends overtime protections to 4.2 million workers who are not currently eligible under federal law.
Workers who earn as much as $47,476 a year ($913 a week) will have to be paid overtime, even if they’re classified as a manager or professional.
In figuring out whether salaried workers’ income qualifies them for overtime, employers will be allowed to count their bonuses and commissions up to 10% of the threshold, if those bonuses are paid at least quarterly. Yearly bonuses are not included in calculating the exemption threshold of base salary.
The Department of Labor will increase the salary threshold every three years. Based on current projections, the salary threshold is expected to rise to more than $51,000 with its first update on January 1, 2020.
Employers must comply with the new regulations by December 1, 2016.
What should I do as an employer?
Immediately review your employee’s compensation packages and ascertain which currently have exempt status and earn between $23,660 – $47,746 per year.
For those employees who fit the criteria, determine if you should increase their salary to meet the new threshold or if they need to be reclassified as an hourly employee and what their new hourly wage will be.
Keep in mind, employees who are reclassified as hourly employees will be entitled to time and a half wages after working 40 hours per week.
Recalculate your compensation packages for your exempt employees, usually managers and above, to ensure that your new hires are in compliance with the new DOL regulations.
Develop systems and provide training for all employees who are now paid hourly on policies and procedures for tracking and reporting working hours.
Speak open and honestly with all employees about the new changes and how they may affect each of them. Choose to have one-on-one meetings, small group meetings, large group meetings, and any combination.
Things to be aware of
Moving an employee from an exempt/salaried status to an hourly employee may be seen as a type of demotion and can affect employee morale and impact the workplace dynamic.
Communication in this new transition is essential in retaining and motivating your staff. Be sure to emphasize to your employees that this change is a result of new regulations and not in any way associated with their performance or contributions to the organization.
When an employee base salary is close to the new threshold and they receive an increase to meet the new threshold, be aware that other employees who have the same title or perform the same tasks, with a current base salary that is just over the new threshold already may see this as unfair if their salaries are not also increased.
Need some more help understanding how to implement these changes in your hotel or restaurant?
» Born and educated in the United States, John Stocki launched his career on a global scale working in Australia, United Arab Emirates, China and the US, as well as traveling and training in over 30 countries. He brings a straight-forward approach, laced with direct personal experience, to his special style of training which is what makes his company – Stocki Exchange – so distinctive. Founded in 2012, the Stocki Exchange enables John to travel throughout the US and abroad helping others to grow their businesses through innovation and inspiration. John is also a contributing writer to The Huffington Post.
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