Legal Updates

The DOL’s New Overtime Rules: What They Require, And How Employers Can Start Preparing

The U.S. Department of Labor (“DOL”) recently released its long-awaited Final Rule implementing significant changes to the overtime regulations under the Fair Labor Standards Act (“FLSA”). Most significantly, the Final Rule substantially increases the minimum weekly salary required for most employees to qualify for the FLSA’s “white collar” overtime exemptions.

Although the Final Rule does not take effect until December 1, 2016, given the major changes it will bring, employers should begin preparing now to comply with it. Below, we provide a number of practical tips to help employers do so.

FLSA Essentials

Under the FLSA, employees must be paid at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek, unless they qualify as “exempt.” The statute includes a number of exemptions from this overtime requirement, including the “white collar” exemptions that apply to certain executive, administrative and professional employees. In general, to fall within one of the white collar exemptions, an employee must be paid a minimum weekly salary, and his or her job duties must meet certain requirements. (Certain types of professional employees, however – including teachers – are not covered by the minimum weekly salary requirement.)

Along with the white collar exemptions, the FLSA provides for various other overtime exemptions. For instance, an employee who does not fall within the executive, administrative or professional exemption may still be exempted as a “highly compensated employee,” if the employee’s work is white collar in nature and his or her annual salary meets a certain threshold.

Summary Of Final Rule

The DOL’s Final Rule significantly impacts these requirements. Its major provisions include the following:

  • The minimum weekly salary required for most employees to fall within the executive, administrative or professional exemption will more than double, from $455 per week to $913 per week – i.e., from $23,660 to $47,476 on an annualized basis.
  • The minimum annual salary required for an employee to qualify for the “highly compensated employee” exemption will jump from $100,000 to $134,004.
  • Automatic adjustments to these salary thresholds (based on cost-of-living increases) will be made every three years, beginning in January 2020.
  • Employers have until December 1, 2016 to comply with the new requirements. (Previously, the changes to the overtime regulations had been expected to take effect 60 days after their announcement, so this extended compliance period came as welcome news for employers.)

Notably, the Final Rule does not change any of the current job duty requirements for the overtime exemptions.

What Employers Should Do

Although the Final Rule’s December 1, 2016, effective date gives employers some time to bring their operations into compliance, employers would be wise to begin this process now. Following are some recommended steps:

  • Determine which employees will be impacted. Employers should start by identifying any exempt employees who currently earn less than $913 per week, as well any employees treated as exempt under the “highly compensated employee” exemption who are currently paid less than $134,004 annually. Employees falling within these categories will be directly affected by the new requirements.
  • Review job descriptions. After determining which employees will be impacted by the Final Rule, employers should thoroughly review those employees’ job descriptions, as well as their actual, day-to-day job duties, to ensure that the positions meet the duties tests of the applicable overtime exemptions.
  • Evaluate whether affected employees should be reclassified or given salary increases. For each exempt employee whose salary does not meet the new threshold, an employer will need to decide whether to increase the employee’s salary or reclassify the employee as non-exempt. For employees whose current salaries are close to the new thresholds, this may be a relatively simple decision. In other instances, however, an employer may decide that it is preferable to reclassify exempt employees as non-exempt.
  • Inform employees of their reclassifications. Employers should provide advance, written notice to employees whose payroll status will change as a result of the Final Rule, and be sure to file copies of those notices in affected employees’ personnel files. Employers should keep in mind, too, that some employees may be unhappy about their reclassification, perhaps viewing a change from exempt to non-exempt status as a demotion. Human Resources personnel and managers should be prepared to respond appropriately to such concerns.
  • Prepare any other required notices of reclassification. Employers should determine, in consultation with legal counsel, whether any other formal notices should be provided in connection with employees’ FLSA reclassification. For instance, some states have wage laws requiring that a written notice of any payroll reclassification be provided to the employee by a specified number of days prior to the change. Similarly, employers that are parties to collective bargaining agreements with unions may have special contractual notice obligations.
  • Provide appropriate training. Managers should be trained (or refreshed) on the nuances of supervising non-exempt employees, particularly managing overtime work in accordance with budget constraints. Similarly, previously exempt employees who are reclassified as non-exempt should be trained on the employer’s policies governing recording work hours and obtaining permission for overtime work. For instance, employees who have flexible work arrangements should be reminded to keep accurate time records even when working off-site or during evenings or weekends.

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While the DOL’s Final Rule will create compliance challenges for employers, starting to prepare now can make this process as smooth as possible. Our attorneys have a wealth of experience assisting employers with overtime and other FLSA issues, and we would be thrilled to help your organization.