On June 25, 1938, the Federal Fair Labor Standards Act (FLSA) was enacted. This far-reaching law covers: overtime pay, minimum wage, child labor and record keeping requirements. It applies to virtually every organization.
In May, 2016, the U.S. Department of Labor (DOL) published its final rule updating the FLSA’s overtime regulations. To assist organizations in complying with the FLSA’s requirements, MRA drafts job descriptions, conducts FLSA exempt/nonexempt classifications of positions, and assists in developing pay plans that align employee results organizational goals, thus enabling organizations to attract and retain the best talent.
Here is a summary of the new overtime requirements:
Salary threshold: The final rule will raise the salary level for the first time since 2004. This increase will go into effect on December 1, 2016. (UPDATE: The final rule is currently ON HOLD as of November 22, 2016)
- Standard salary level. The final rule will raise the standard salary threshold to equal the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South. This will raise it from $455 a week to $913 a week ($47,476 for a full-year worker). This means that 35 percent of full-time salaried workers will be automatically entitled to overtime, based solely on their salary.
- Highly Compensated Employees (HCE) salary level. The rule also updates the total annual compensation level above which most white collar workers will be ineligible for overtime. The final rule raises this level to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 to $134,004 a year.
Automatic updates: The DOL’s final rule will fix this by automatically updating the salary threshold every three years, beginning January 1, 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
Bonuses, incentive payments, and commissions: The final rule will allow up to 10 percent of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis. This is a change from current rules.
Duties test: The final rule does not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay. For workers with salaries above the updated salary level, employers will continue to use the same duties test to determine whether or not the worker is entitled to overtime pay.
MRA has many tools and resources to help you understand the impact these changes have on you and your organization:
- A set of questions and answers that explains the impact of the new rule on organizations.
- A comprehensive FLSA Exemption Rules Toolkit, available in the HR Resource Center for members, which includes evaluation and communication tools and resources.
To assist organizations in complying with the FLSA’s requirements, MRA drafts job descriptions, conducts FLSA exempt/nonexempt classifications of positions, and assists in developing pay plans that align employee results organizational goals, thus enabling organizations to attract and retain the best talent.