What Will Changes in Overtime Rules Mean for Employers?

By: Darla J. McClure

Related Attorney(s): Andrew L. SchwartzKaren N. ShapiroDonald N. Sperling

Media Type: Alert

UPDATEOn Wednesday, May 18, 2016, the Obama administration unveiled the final version of a rule extending overtime pay to 4.2 million U.S. workers. The bill will take effect December 1, 2016. 

The U.S. Department of Labor, in response to an executive order signed by President Barack Obama, recently issued proposed changes to the overtime exemptions under The Fair Labor Standards Act (“FLSA”). Specifically, these changes apply to the salary test for administrative, professional, executive and highly compensated employees.

The FLSA provides that employees who work more than 40 hours per week are entitled to overtime pay for any hours worked over the 40-hour threshold. There are, however, exemptions to these overtime requirements if an employee satisfies a salary test and duties test. Currently, under the salary test for administrative, professional and executive employees, an individual must make a minimum of $455 per week, or $23,660 annually, to be considered exempt from overtime pay. The highly compensated employee exemption requires that the employee be paid a minimum of $100,000 annually to be considered exempt.

Changes ahead
The proposed changes would raise exemption salary levels to $921 per week, or $47,892 annually, for the administrative, professional or executive employee and to $122,148 annually for the highly compensated employee. These levels will increase annually based on either average earnings for salaried workers or the Consumer Price Index. The revised regulations were issued on July 6, 2015, and were followed by a 60-day comment period that ended September 4, 2015.

There is no way to predict when the Department of Labor will issue final regulations taking into account the public’s comments on the draft regulations. It is anticipated that the final regulations could come as early as the first part of 2016. If this is the case, the new regulations could have retroactive effect to January 1, 2016.

What to do
Employers should begin analyzing any effect of the revised regulations on their businesses. Companies will face either increasing employee salaries for those they wish to keep as exempt or converting those employees to nonexempt status paying them overtime. The key is to have a plan ready for implementation and to manage employees’ expectations as these regulations change.

If you have questions about the impending changes to The Fair Labor Standards Act, contact one of the attorneys in our employment law department at 301-340-2020.

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