The DOL’s New Overtime Rules: What Employers Need to Know [Blog Post]
October 20, 2016 - By: SC&H Group
The following SC&H Group blog post discusses the recently updated federal overtime regulations, helping not-for-profit executives assess the short- and long-term impact to their organizations, as well as the most advantageous ways to respond.
In today’s environment of tightening budgets and increased competition, it is critical for businesses of all sizes to effectively monitor, evaluate, and plan for new regulatory developments. Such is the case with the U.S. Department of Labor’s final rule updating overtime regulations under the Fair Labor Standards Act (FLSA).
The new provisions, which were announced on May 18, 2016 by President Obama and Secretary Perez, will impact a wide array of organizations, forcing them to evaluate and adjust their wage practices and policies. In fact, the changes will impact 12.5 million Americans, according to a recent Economic Policy Institute report, and 35 percent of full-time salaried employees will now be eligible for time and a half. That is a five-fold increase from those eligible today.
Key Changes Resulting from the New Overtime Rules
Highlights of the new provisions, which will go into effect starting December 1, 2016, include:
- Increase in minimum salary required for overtime exemptions. The final rule will more than double the minimum salary required to be exempt from overtime requirements under the FLSA’s executive, administrative, professional, outside sales, and computer employee exemptions. It establishes $47,476 (previously $23,660) as the new minimum salary required for these exemptions, which corresponds to the 40th percentile of weekly earnings for full-time salaried workers in the lowest income region in the United States.
- Increase in minimum salary required for HCE exemption. The final rule will also significantly increase the minimum salary required to satisfy the highly compensated employee (HCE) exemption. It establishes $134,004 (previously $100,000) as the new minimum, which corresponds to the 90th percentile of full-time earnings nationwide.
- Automatic increases in salary thresholds. The final rule provides for the minimum salary thresholds to automatically be increased every three years to account for rising costs of living and ensure that the minimum salary thresholds stay at the 40th and 90th percentile levels for the lowest income region in the United States.
- 10 percent rule: The final rule allows up to 10 percent of the non-HCE salary to be satisfied by nondiscretionary bonuses, incentive payments, or commissions, so long as those payments are made on at least a quarterly basis. The value of other fringe benefits, such as health insurance, still cannot be counted toward the salary threshold.
Implications for Executives and Organizations
With the final rule provisions going into effect in a matter of weeks, it is critical that organizations begin preparing to ensure compliance—especially considering the volume of changes that may be required.
For example, executives may need to increase wages to meet the minimum thresholds, or add overtime wages to salaries that fall below the minimum thresholds. If not, their organization may be at risk of regulatory penalties and/or wage and hour lawsuits. And, with the number of wage and hour lawsuits rising 358 percent in the last 15 years, according to a recent Washington Post report, the costs for unprepared organizations could increase even more.
In addition, since not-for-profit organizations may have to reclassify some employees (e.g., exempt to nonexempt), the final rule may impact benefits costs. Further, organizations may have to invest in employee training and a more robust timekeeping system, ensuring that records are accurate.
Ultimately, by working with an experienced advisor, executives can ensure that they are prepared and compliant, minimizing risk and positioning their organizations for long-term success.
To learn more about strategies for managing this and other issues facing not-for-profit organizations, please join SC&H Group on Thursday, October 27, 2016 for our semi-annual NFP Summit. Click here to register and view the full agenda. Or, to learn more about SC&H Group’s specialized not-for-profit audit, tax, and consulting services, contact us here.