New laws went into effect on December 1, 2016 which give overtime a whole new meaning. The Department of Labor, Wage and Hour Division, finalized the changes to the Fair Labor Standards Act last May. The new changes guarantee a minimum wage for all hours worked during the work week and overtime pay of at least one and one-half times the employee’s regular rate of pay for hours worked in excess of 40 in a work week.
The Department of Labor (DOL) has updated the overtime law before, but this new implementation is quite different from past adjustments made. This change increases the White Collar Exemption salary threshold by more than 100%. Generally “white collar” exemptions in the past applied to people that worked in offices or other professional environments. Below are the four major changes:
The White Collar Exemption salary threshold was previously $455 per week or $23,660 per year. This has now increased to $913 per week or $47,476 per year. This means that salaried employees making less than $47,000 per year must be compensated for anything over 40 hours.
The Highly Compensated Employee salary threshold has increased from $100,000 per year to $134,004 per year.
There will now be automatic updates to the salary threshold every three years with the first update due to go into effect on January 1, 2020.
The final rule is quite involved with lots of exemptions, details and clauses.
Two key factors are:
The 40-hour benchmark must be calculated on a weekly, rather than a monthly basis. Therefore, an employee that works a lot of overtime at the end of the month, but less than 40 hours at the beginning of the month, is entitled to overtime for any week that they worked for more than 40 hours.
Employees do not have to be approved for the overtime that they work.
The new law has wide ramifications beyond employees making less than $47,476 a year. Employers will need to balance rather they will adjust an employees’ pay, modify their job descriptions or add in disciplinary actions for working overtime. This can all have an impact on employee morale and the amount of time off that employees are given.
It is important for an employer to figure out which of their employees will fall under this new law. The DOL has published a fact sheet which can be found at https://www.dol.gov/whd/overtime/fs17a_overview.htm, to assist with this. If an employer fails to comply with this law they may be subject to an IRS audit, DOL audit or even litigation. An employer will still have the flexibility to choose the options that work best for their workplace