How Will The New Overtime Rules Affect You?

Is your mind already racing about how the new overtime regulations will affect your company? The media is buzzing about today’s release of the U.S. Department of Labor’s new rules regarding overtime pay.  The recent DOL publication highlights the following changes:

1. Sets the standard salary level at the 40th percentile ofearnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.  
4. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.     

Now that the Final Rules have been decided, how will your company be affected by the changes? One of the first things you’ll want to do is identify who in your company will be impacted and in what way. For example:

1. What exempt groups do you have that are paid below the new minimum salary levels?  Will the pay changes to these groups affect others (peers, supervisors, etc.)?
2. Do these groups currently work overtime? If the answer is yes, than you’ll need to take a look at how many hours they are working in excess of 40 hours per week.
3. What is the cost of increasing base versus switching to hourly pay for each of these groups?

Once you have identified the areas within your company that require adjustments, it’s time to come up with an action plan to get everyone on track by December 1, 2016.  But remember, we’re expecting updates every three years going forward, so it’s not just about solving the immediate problem.  To ensure fairness and consistency in the future, we have to think ahead.  Here are some things to consider:

1. Have you thought of a policy for handling regular changes?
2. How will you decide which groups to increase versus switch to hourly pay?  Is it purely a cost analysis, or are there other criteria (e.g. job type, cultural impact, etc.)?
3. What method will you put in place to track the hours of salaried employees to keep them under the 40 hour limit?
4. What is your current job analysis process?  Will you adjust this to align with regular DOL updates?

Although the effective date for these changes is set at December 1, 2016, beginning immediately is the key to long-term success.  You will want to allow time to create sound strategies within your company, that are both aligned with your culture and as cost effective as possible. We will be following the effects of these FLSA updates and providing you additional insight and resources in the upcoming months.  Stay tuned!