On May 18, 2016 the Department of Labor updated the salary requirements for the executive, administrative, and professional overtime exemptions under the Fair Labor Standards Act (“FLSA”). The new rule, which goes into effect on December 1, 2016, raises the administrative exemption from $455 per week to $913 per week. Thus for executive, administrative, or professional employees to properly be classified as exempt from overtime, they need to be earning a minimum of $913 each week (which amounts to about $47,476 per year). In addition to this increase, the Department of Labor’s new rule also establishes a mechanism to automatically update the salary and compensation levels every three years. This new rule is set to impact approximately 4.2 million workers in the United States who are currently considered exempt from overtime pay.
In light of its anticipated impact, how should businesses prepare for the implementation of the new rule? As a starting point, employers have until December 1, 2016 to become compliant with the new overtime law. Employers have several options available to them. Employers can choose to pay its executive, professional, or administrative employees on an hourly basis and pay time-and-a-half for the hours worked over 40. Alternatively, employers can raise salaries above the new $913 threshold. As another option, instead of raising the salary or paying overtime, employers can limit hours worked to 40 hours each week. As a practical point, employers who choose not to raise the salaries of their workers should strongly consider having employees account for the hours worked each week.
It is important for employers and businesses to be aware that other than raising the minimum salary amount required for exemption from overtime, the Department of Labor’s new rule does not alter the tests to determine if employees are properly classified as exempt from overtime. Not every employee who is compensated at least $913 per week is exempt from overtime. Employers should be careful to review the job descriptions and duties for their salaried workers to make sure that in addition to meeting the new salary threshold, they satisfy the tests for overtime exemption under the FLSA.
Employers in Massachusetts should be aware that if employees are improperly classified as exempt and/or are not compensated for overtime, they may be subjected to treble damages under the Massachusetts wage and hour laws.
