On May 18, 2016, the Department of Labor (DOL) issued a new rule increasing the minimum salary requirements for overtime compensation under the Fair Labor Standards Act (FLSA).

The rule, which goes into effect on December 1, 2016, applies to executive, professional, and administrative employees. To be exempt from overtime these employees must earn at least $913/week or $47,476 annually.

For highly compensated employees (HCE) the new test is $134,000 subject to the minimum duties test.

Additionally, a new mechanism was put in place to update these levels every three (3) years.

As an employee, you must determine the following:

  1. Review your company handbook and policies to reflect the new rules
  2. Review overtime policies to limit costs
  3. Be mindful of hours actually worked
  4. Review whether a salary increase is a better alternative than paying overtime to those employees at the salary threshold
  5. Review what impact the new rule will have on cost of eligibility for benefits.

As an employer, you can make several changes to keep the cost of this rule to a minimum. Such changes include eliminating overtime; increasing salaries to get above the minimum, or even (although not preferred) reducing hourly compensation. Lastly, it is very important to track the hours worked by these employees.

This shift will primarily hurt businesses who have relied on paying younger individuals less money with the promise that in time, the opportunity will reward itself. While this culture may seem prevalent in major cities, it often comes a high price for those struggling to make ends meet. This law seeks to place more responsibility on companies to fairly compensate their employees. It may be efficient to hire a new team of recent graduates each year, however, this places an enormous strain and stress on those employees. Worse, the promise of opportunity does not always equate into a guarantee. 

If you’d like advice on how to find the best solution for your company, reach out to me at Koppekin Consulting, Inc. The sooner you plan for these changes, the smoother your transition will be this winter.