Ante Up! What do the DOL’s New FLSA Overtime Rules Mean to Employers? | DCR Workforce Blog

Ante Up! What do the DOL’s New FLSA Overtime Rules Mean to Employers?

Everything started with Elizabeth Paredes and her letter to the President of the United States. Mother of a three-year-old, and an assistant manager at a sandwich shop, Elizabeth earned approximately $2,000 a month for work that exceeded 50 hours or more per week. As a manager, she did not merit a dime of overtime pay. She told the President that the work she does requires a lot of time away from her son, and not having it compensated makes it seem not worth the trouble!

Inquiry was made and the quantum of litigation on the issue was assessed. It was found that only 7% of all full-time workers were at all eligible for overtime, based on their income. The Department of Labor (DOL) was given the mandate to study the existing overtime protections and propose their replacement.

The new rules took two years to be prepared, but once finalized for implementation beginning on December 1, 2016, they will extend overtime protections to 4.2 million Americans, whose hard work was going uncompensated. It will net $12 billion in overtime wages to workers in the next 10 years, or give them some free time to go home to their families or get the required training to build new skills. The quantum of minimum salary requirement will be upgraded annually while the compensation will get updated automatically, every three years – unlike the previous update in 2004 which remained unchanged for more than a decade.

What must employers do?

To implement the new rule, employers have just a little more than 120 days in which to evaluate their workforce structure and transition them to a feasible and effective arrangement that ensures their compliance with the new Fair Labor Standards Act (FLSA) overtime regulations.

  • Before applying the FLSA’s “white collar exemptions,” or duties test applicable to executive, administrative and professional employees, an employer has to check if the employee’s salary meets the established minimum level of $47,476 per annum (or $913 per week). All employers throughout the country must meet this mandatory salary level which classifies an employee as exempt, in spite of substantial differences in cost of living from state to state and region to region.
    This leaves an employer with two options, both of which mean higher costs and require careful deliberation on a case-by-case basis before being decided:

    • Give a raise to an exempt employee to bring their total compensation over the specified threshold of $913 per week, or
    • Re-classify them as non-exempt employees, and entitle them to overtime pay. Such a reclassification could hurt employee morale as it could put a dent in their status or change their pay grade, threatening the workers’ fixed take-home pay. It would also require more focus on tracking their time appropriately.
  • The new FLSA overtime rules permit an employer to take payments such as non-discretionary bonuses, incentives, commissions and productivity/profitability bonuses to satisfy up to 10% of the threshold salary level of $47,476 or $4,747. If an employer pays significantly higher bonuses, such payments cannot be factored into the total annual compensation level for such employees. This rule can be useful for employers who wish to increase the salary levels of workers who fall below the required threshold.
  • The three-year mandatory automatic increase in threshold salary (based on what is earned by salaried workers in the lowest wage region) makes it harder for employers to decide whether to raise the salaries of their employees or re-classify them. A raise could burden employers with such automatic increases that can’t even be predicted, but could come even during difficult economic times. Small employers could be especially burdened by this regulation.
  • The new rule sets the minimum salary required to fulfill the highly compensated employee exemption at $134,004, a level that’s also subject to an automatic increase every three years.
  • The duties test remains unaltered and employers still need to evaluate the responsibilities of an employee to determine that their primary duties are executive, administrative and professional in nature.

Employers need to exercise enormous care in calculating new hourly and overtime rates, as well as in determining whether total compensation will meet or exceed the threshold salary level. Either way, they must be prepared to ante up! They must also account for any and all hours worked over 40 in a work week, and when paying newly non-exempt employees at their overtime rate.

Should the DOL follow up these new regulations with increased oversight and enforcement once it’s implemented, the number of litigations over the issue of overtime may increase significantly, especially as the awareness for these regulations will also be high. As most overtime litigation is brought as a class action suit, employers stand to face significant financial burden in the form of legal costs and penalties over any act of violation, whether deliberate or not.

Does your VMS help you stay compliant with FLSA overtime rules and other government mandates? If not, you may want to see how Smart Track can help you stay compliant and avoid such risks.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.