Department of Labor announces final overtime rule
On May 18th, 2016, the Department of Labor's (DOL) Wage and Hour Division issued its long-awaited Final Rule regarding “white collar” exemptions under the Fair Labor Standards Act (FLSA). This rule doubles the annual salary threshold under which an employee can qualify for overtime and will go into effect later this year on December 1, 2016. It’s prudent for Hawaii employers to not only familiarize themselves with the new legislation, but examine their employees’ current FLSA status’ and pay rates to ensure compliance.
Here’s what you need to know.
According to the Final Rule published by the DOL:
- A salary threshold of $47,476 annually ($913 per week) for Executive, Administrative, and Professional workers must be met or exceeded to exempt the employee from overtime pay (the position must still meet requirements under FLSA duties tests, which have not changed).
- The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
- Automatic salary threshold increases will occur every three years beginning on January 1, 2020.
- The new rule also increases the total annual compensation requirement needed to exempt the special class of workers known as highly-compensated employees (HCEs) to $134,004 per year.
What this means for your business.
As an employer, you may have concerns about how this ruling will affect your business, and understandably so. The good news is that employers do have a wide range of options when it comes to responding to this new ruling, including:
- Pay overtime when necessary – Continue to pay overtime-eligible employees the same salary, and pay overtime whenever they work more than 40 hours in a week. This approach would be beneficial for companies with employees who only occasionally have spikes in workload.
- Raise salary above the threshold to keep the employee exempt from overtime – Employers may choose to raise the salaries of workers who are at, or just under, the salary threshold and frequently work overtime. However, remember that employees’ primary duties must still satisfy the “duties tests” as required by the FLSA. In the event of a DOL audit, a current job description will assist in providing documentation to support the exemption.
- Reassign work hours and workload – Ensure that workload distribution is managed appropriately so that all “white-collar” workers who earn below the salary threshold never have to work overtime hours. This may require hiring additional workers.
- Adjust wages – Lower the base pay for affected employees so that overall pay, including overtime pay, remains largely unchanged. An employee’s hourly wage cannot fall below the applicable local, state, or federal minimum wage nor can wages be adjusted on a weekly basis. Be mindful that employees could perceive this as demotion or loss of status, and it may negatively impact employee morale and lead to turnover.
According to the DOL, this new ruling will provide overtime protections to an additional 15,000 Hawaii workers, though the final implications of this change remain to be seen. Your company should start planning now and determine what method of compliance works best for your business’ bottom line so you’re not caught off guard when December rolls around. Additionally, consider developing a strategy for providing consistent and positive communication to your employees about any impending changes to ensure you maintain a happy and productive workforce.
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The last few years have been incredibly turbulent when it comes to being an employer in Hawaii. In addition to our state’s talent shortage, new issues and laws just like the new overtime rule are coming into play on a monthly basis. With so much on your plate already, keeping up with these changes can be daunting. However, it’s important to remember that ignorance is not an excuse; in fact, it can hurt your company.
If you need help staying abreast of current laws, mandates, and upcoming issues, talk to one of our expert HR Consultants by calling (808) 791-4900 or emailing us at simplicityHR@altres.com. We can help take the stress of being an employer off your shoulders and keep you up-to-date on the important issues you need to be aware of.
This article is for general informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.