On May 18, the U.S. Department of Labor released its final rule on the Fair Labor Standards Act overtime law. Previously, employees who made $455 per week or $23,660 per year or more were not eligible for additional pay for working extra hours. Companies and their human resources teams should review the new regulation and ensure they're taking the necessary steps to comply with the new federal responsibility.
Delayed implementation
The DOL proposed an increase to the salary and compensation threshold for overtime eligibility in June 2015. The agency suggested the cap be moved to $970 per week or $50,440 per year. Any worker making less than this rate would be qualified for additional compensation.
Beginning December 1, 2016, the overtime threshold will increase to $913 per week or $47,476 per year. These figures are essentially twice the previous cap. The DOL also boosted the exemption rate for highly compensated employees (HCEs) to $134,004 from $100,000.
Since the rule will not go into effect until the end of the current year, businesses have time to evaluate their employee roster to determine which workers may now be eligible for overtime pay. Since these reclassifications will result in higher paychecks for some people, organizations should utilize the delayed implementation to readjust budgets and figure out how other offerings – including benefits – may be affected.
"Compensation levels will be adjusted every three years, starting in 2020."
Future updates
The last alteration to the overtime ruling came in 2004. The DOL's earlier proposal also recommended an annual update to the standard by maintaining the levels at a fixed percentage of earnings or according to the consumer price index for all urban consumers (CPI-U).
The final ruling puts this automatic mechanism into place, but changes wouldn't be as frequent as initially proposed. Instead, salary and compensation levels will be altered every three years starting January 1, 2020.
In addition, the current duties tests – used to determine overtime eligibility for certain administrative, executive and professional workers – will remain the same. The DOL believes the updated rule will make it easier for employers to classify their workers, making the duties test less necessary in the future.
For months, employers waited and prepared for the DOL to release its final ruling on overtime compensation. The time has finally arrived, and the new regulation will have an effect on companies across the country. It's important for businesses to make their workers aware of this alteration and to determine how the update will change employee satisfaction and benefits offerings.