Today the U.S. Department of Labor (DOL) released its long awaited changes to the nation’s overtime rules. It is estimated that the changes will extend overtime pay protections to over 4 million workers next year. The rule change was requested in 2014 by President Barack Obama. Obama directed the DOL to update the regulations defining which white collar workers are protected by the Fair Labor Standards Act’s minimum wage and overtime standards. The main goal of the directive was to look for ways to modernize and simplify overtime regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
Key provisions of the new rules
The new DOL overtime rules focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional workers to be exempt. Specifically, the new rules:
- 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 the new rules amend the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The effective date of the new rules is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
The DOL specifically addressed how these new rules may affect the nonprofit sector. Read that review here. They’ve also produced a nonprofit specific guide to the new rules.
What’s a nonprofit to do?
First, take a look at your current exempt qualifying positions. Review the job descriptions and actual duties those positions perform; determine how far off they are from the new salary level. Can you condense positions and transfer duties to other exempt positions?
Do the math
For example, perhaps it will cost less in the long run to increase several salaries to meet the new level, thereby avoiding hours of overtime each week.
Increase your headcount
If you have reduced exempt positions, you may need to hire additional hourly/nonexempt staff to ensure that the nonexempt duties are taken care of.
Be well versed in the FLSA recordkeeping laws
Those former exempt employees who didn’t track their time are now tracking each and every minute worked, as the law requires, AND you need to pay appropriately.
Think about communication
How are you going to get the word out? Let your employees know that these standards are set by the federal government and not on the discretion of your organization. Be aware that your employees may already be discussing these upcoming changes and anticipating positive or negative changes. Consider having both private and group discussions so there is less distrust. Education for all on the law may be your friend. Be as open and transparent as possible.
No matter what course you choose, there will be issues. Be ready to weather the rough spots with humor, communication and facts.