New overtime rules were recently issued under the Fair Labor Standards Act (FLSA) that become effective December 1, 2016. The new rules are estimated to affect some 4.2 million workers and will increase the overtime exempt salary threshold from $455 per week to $913, equal to $47,476 annually. This means those who make less than this threshold annually are eligible to receive overtime pay. The rules were last updated in 2004, and are set to automatically update every three years; the first update will be effective January 1, 2020, and is projected to be above $51,000. There are no changes to rules for executive, administrative, and professional employees.

Under the changes in the overtime rules, which apply to eligible workers that work more than 40 hours in a week, employers have the option to pay time-and-a-half for overtime work, raise workers’ salaries above the new threshold, limit workers’ hours to 40 hours per week, reduce the amount of pay allocated to base salary and add pay to account for overtime hours worked over 40 in the workweek, to hold total weekly pay constant, or some combination of these.

In determining who is exempt under the new rules, employers are permitted to count nondiscretionary bonuses, incentives, and commissions toward up to 10 percent of the required salary level for the standard exemption, as long as employers pay those amounts on a quarterly or more frequent basis.

In advance of the effective date, HR leaders should begin identifying who will be affected within their organization by the new rule, and having strategic discussions about how the company will comply with these changes in their business. HR leaders should also be reviewing and updating job descriptions for the duties performed by position within their organization, as exemptions to the rule are also driven by the Department of Labor’s “duties test.”

Article written by:
Michael Purcell, CPA
Assurance Senior

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