June 2, 2016 – As a follow up to our previous blog, the Department of Labor (DOL) has finalized changes to the Fair Labor Standards Act (FLSA) regarding overtime pay for executive, administrative, professional, outside sales and computer employees. It becomes effective December 1, 2016 .
The Current State of Overtime Exemption
The FLSA guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. Under the current regulations, employees with pre-determined and fixed salaries above a threshold of $455 per week or $23,660 annually and who perform certain job duties are exempt from overtime pay requirements.
Who will be eligible for Overtime on 12/1?
The key provisions of this final rule include increasing the exempt level by setting it at the 40th percentile of earnings of full-time salaried employees ($913 per week or $47,476 annually) and the total annual compensation requirement for highly compensated employees from $100,000 in total annual compensation to the 90th percentile of earnings of full-time salaried workers nationally ($134,004 annually). Automatic updating is also a key provision which includes a mechanism to automatically update the standard salary level requirement every three years as a way of providing an effective means of distinguishing between overtime-eligible white collar employees and those who may be valid executive, administrative, professional employees.
According to the DOL’s estimate, 4.2 million workers who are currently exempt will be extended rights to overtime pay assuming no intervening action from employers. They also claim that existing overtime protections will be strengthened for 5.7 million additional white collar workers and 3.2 million salaried blue collar workers whose entitlement to overtime pay will no longer rely on the application of the duties test.
Additionally, there will be no changes to the duties test and employers, for the first time, can use non-discretionary bonuses and incentive payments to fulfill up to 10 percent of the new standard salary level.
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About the Author
Karen D. Costa CPA
Karen, Assurance Services Director and Co-Leader of the Dopkins Not-for-Profit and Healthcare Teams, has lengthy experience with both for-profit and not-for-profit healthcare organizations specializing in auditing, revenue cycle consulting and certification of their Medicaid cost reports and specialized compliance audits.