Changes Coming to the Fair Labor Standards Act

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On May 18, 2016, the Department of Labor issued revisions to Part 541 of the Fair Labor Standards Act (FLSA) regarding overtime regulations. These changes are set to take effect on December 1, 2016. So what does that mean for you as an individual or a business owner? Two main areas will be affected.

Salary Threshold

The first change to FLSA regulations addresses the salary threshold for which employees must be paid overtime. Up until this change, any employee making below $455 per week or annual earnings of $23,660 were required to be paid overtime if they exceeded 40 hours of work per week (full-time employment). Now the new threshold will increase to employees making below $913 per week or $47,476 annually. This is a significant increase in a number of overtime hours that a business could potentially owe their staff. Overtime pay is required to be a minimum of one and a half times the hourly rate an employee receives. In addition, this salary threshold is set to automatically increase ever three years based on projected wage growth. By January 2020, it is estimated to increase to more than $51,000 in annual salary.

Employees that are exempt from this threshold change must meet this salary level as well as pass a duties test, which has not changed format. Currently, certain executive, administrative and professional, computer professionals and outside sales employees are exempt. This is referred to as the white-collar exemptions.

Highly Compensated Individuals

The second regulation change affects those employees that are highly compensated and are also exempt from the overtime rules under the FLSA. The Department of Labor is increasing the annual salary threshold from $100,000 to $134,004. Three tests must be met in order from one of the FLSA white-collar exemptions to apply and title alone does not automatically create an exemption.

  1. A predetermined and fixed salary that is not subject to reduction because of variations in the quality of quantity of work performed must be paid.
  2. A minimum specified amount of salary must be met (salary threshold).
  3. The job duties of this employee must primarily involve executive, administrative or professional duties (as defined by the FLSA regulations).

There are exemptions in place for Educators and Professionals as well. The salary and salary basis requirements do not apply to bona fide teachers.

The Bottom Line

Companies and employees need to be in compliance with these new regulations by the end of 2016. Changes will be needed on many fronts for business owners and employees. Knowledge of these changes is key for all affected. Putting into place a means for keeping track of overtime for additional workers will be necessary. The DOL estimates that employers will spend approximately $592.7 million to comply with these new rules. Some employees may not like the changes.  Examining telecommuting and travel policies, timekeeping systems and need for overtime work should be done by business owners. AIS is here to guide you through how your business or individuals might be affected. Call us with questions or concerns to make sure you are compliant when necessary. (800) 523-8351