CMLS Human Resources Section Council Highlights New FLSA Overtime Law Ruling
Wednesday, July 6, 2016
Posted by: Rich Becker
CHICAGO — The CMLS Human Resources Section Council advises there are changes to the Department of Labor’s (DOL) overtime exemption rules. These rules will become effective on December 1, 2016.
The central part of this new legislation is that it will change the current minimum annual salary level based test for the overtime exemption. All other rules can be found on the Wage and Hour Division section of the DOL website.
Key Provisions to overtime rule changes (per the DOL website)
- Sets the standard salary level at the 40th percentile of earnings 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);
- 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
- 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.
- 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 provided the bonus or incentive payments are paid on a quarterly or more frequent basis. The rule also allows for an employer to make a “catch-up” payment.
If you have salaried exempt employees that earn less than $47,476 per year they will be affected by this rule. Start by reviewing all employee classifications and ensuring that they are compliant with current FLSA standards. Then, perform a review of salaried exempt employee annual salary amounts.
For those salaried exempt staff that fall below the new annual baseline salary of $47,476, there are two options to consider:
- Increase their annual base pay to satisfy the requirement.
- Change their FLSA status to Hourly Non-Exempt.
While changing a staff position from 'Exempt' to 'Non-Exempt' is not always an easy decision, utilizing the FLSA duties test should clearly outline why a position is classified 'Exempt' or 'Non-Exempt' from overtime earnings.
The CMLS Human Resources Section Council will continue to bring you more information on this important ruling should any further changes occur. You can also review the Questions & Answers section from the General Information Overtime Webinars hosted by the DOL earlier this year.