With the Right Planning, the Impact of the New Overtime Rules Can Be Limited With the Right Planning, the Impact of the New Overtime Rules Can Be Limited

With the Right Planning, the Impact of the New Overtime Rules Can Be Limited

On May 18, 2016, the Department of Labor issued new rules changing the white-collar exemption requirements under the Fair Labor Standards Act (“FLSA”). Despite a cry that “the sky is falling” across the media and commentary relating to the Department of Labor’s new overtime rules, employers can avoid any significant issues or adverse consequences with a little due diligence, some planning and the support from an experienced FLSA attorney. The new regulations change only the salary threshold. Now, those white-collar, salaried workers making less than $47,476 annually ($913/week) are entitled to overtime. This is an increase from the prior rule of $23,660 annually ($455/week). The new salary threshold for the highly compensated employee exemption is $134,004, up from $100,000. The salary amounts will be subject to increase every three years based upon pay data from the Bureau of Labor Statistics. Prior to any increase, the DOL will provide employers with at least 150 days’ notice. The first increase won’t occur until January 1, 2020, with the DOL predicting an annual salary of $51,000.

For the first time, non-discretionary bonuses and incentive payments can satisfy up to 10% of the salary requirement. To be eligible, non-discretionary bonuses and incentive payments must be based on a fixed formula, such as meeting pre-announced measurable goals. In other words, discretionary bonuses not in accordance with any pre-determined standards do not qualify. To count toward the salary thresholds, such payments must be made at least quarterly.

The DOL did not change the exempt “duties” tests, leaving in place well-established case law and precedent to guide those decisions. In addition, the new regulations do not change exemptions for non-white collars employees, such as the motor carrier exemption or the exemption for commissioned retail sales employees. The new regulations will take effect on December 1, 2016, so there is time to plan.

What does this mean for employers? Admittedly, it requires employers to reevaluate their compensation plans, timing of compensation, existence and amount of non-discretionary bonuses, job titles, job responsibilities, allocation of labor and anything else in their particular industry impacting the compensation of their employees. It does not require employees to grant an automatic payroll increase.

Employers have several options to limit the impact of the changes rather than simply increasing employee compensation or hiring more workers.  Of course, the obvious solutions are:
  1. Limit hours to 40 per week;
  2. Pay overtime; or
  3. Raise employee salaries above the new threshold of $47,476.
With the right planning, however, creative solutions exist that can minimize the impact on total payroll. Now is the time to analyze whether you could remove duties for certain employees. In other words, should you consider demoting employees to avoid payroll increases? Alternatively, adding duties commensurate with a pay raise might be a good option. Coupling a promotion with other long-term organizational strategies should be considered.

Regardless of your approach to the new rules, start planning now!  Waiting until November might hamper your ability to use these required changes for a positive impact on your company.

To obtain more detailed information on how you can manage these changes, view the recap of Ice Miller’s FLSA rules webinar, held on May 24. The recap will be published on our Labor and Employment webinar page. In addition, please contact Catherine Strauss or any member of the Ice Miller Labor, Employment and Immigration practice for further guidance.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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