The Final FLSA Rules: What’s Changed and What You Need to Do To Prepare

On May 18, the highly anticipated changes to the Fair Labor Standard Act’s (FLSA) overtime and minimum-wage requirements were finally released. There were a few surprises in the final rules, as well as some changes that were a bit more scaled back than initially expected.

The U.S. Department of Labor (DOL) last updated these rules in 2004, and the sweeping changes may have a significant impact on businesses with exempt employees. According to the DOL, the rules are projected to impact over 4.2 million workers across the country, 56 percent of which are women, and 61 percent aged 35 or older. These rules are also projected to raise salaries by more than $1.2 billion per year.

The new FLSA overtime rules go into effect December 1, 2016, which means that employers only have approximately six months to decide how their company is going to ensure compliance.

The biggest change is the salary threshold: the new salary threshold is $913 per week (or $47,476 annually). This is up from $455 a week or $23,660 per year. This is less than the $50,440 threshold that was projected before the rules became final.

The new rule also sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region. This region is currently the South. This was also a change from the projections that anticipated the standard salary level would be the 40th percentile of full-time salaried workers at a national level. The final rule takes into account salary variations from region to region.

In addition, the salary threshold will now be updated automatically every three years beginning on January 1, 2020. The DOL will announce these changes 150 days in advance. This “automatic update” is the first of its kind in the DOL’s history.

“Highly compensated employees” (HCEs) will also see their salary threshold increase from $100,000 to $134,004, and be subject to the same automatic updates every three years. The HCE threshold is determined by the 90th percentile of data representing full-time salaried workers nationally.

The new rules also allow employers to use nondiscretionary bonuses and incentives to satisfy up to 10 percent of the standard salary level. However, these bonuses must be paid at least quarterly.

One thing that hasn’t changed is the “duties test” as it relates to the kinds or amounts of work required to maintain an exempt status. The current duties tests relate to work performed by executive, administrative, professional, and some computer employees. Job titles do not determine exempt status; rather, specific job duties and salaries must meet all the requirements.

While there will most likely be challenges and lawsuits to the final rules, it’s in the best interests of company owners to move forward as if these changes will take place as scheduled.

Jane Clark, a founding partner of Clark & Gotzler, Attorneys at Law, suggests that companies use this opportunity to review all their exempt status employees, including salary tests and the duties test. She notes that the DOL has been extremely active in the last few years and may use the new salary thresholds as an audit tool to review both salary and duties tests for exempt employees.

In our May Industry Insider webinar, A Review of the DOL’s Proposed Changes to the FLSA and the Potential Impact on the Staffing Industry, Ms. Clark outlines what owners can do to prepare for the changes:

  1. Identify and review exempt positions and salaries that fall below the new $47,476 threshold.
  2. Determine which cannot remain exempt, including looking at duties testing (even though the new rules do not change the duties tests).
  3. Decide whether or not to keep positions as salaried and exempt, salaried and non-exempt or hourly and non-exempt (the last two would require overtime pay for more than 40 hours worked in a week).
  4. Work closely with legal and HR advisors.
  5. Develop a new compensation plan that looks at base pay and bonus pay.
  6. Budget for annual updates for minimum salary levels.
  7. Develop an overtime strategy, which may or may not include prior management approval for overtime.
  8. Develop a communication plan for employees to explain the changes.
  9. Train managers on managing overtime and developing classifications for new positions.

Ms. Clark also lists “borderline positions” to review specifically, which includes assistant managers, non-CPA accounting positions, lower level sales positions and sales support, help desk positions, computer positions that don’t involve programming, customer service positions, nursing and in-home care service, and part-time positions (which also fall under the new $47,476 threshold).

Tricom’s May Industry Insider webinar presented by Ms. Clark goes into further details about the new FLSA rules, as well as what staffing company owners should do to prepare for implementation, including specific ways to calculate overtime exposure and your options to make the best compensation decisions for your business. You can view the complete webinar by clicking here.



Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.