New Federal Regulation!

December 1st will be upon us before we know it! The significance, besides just 24 shopping days left before Christmas? Short of a Federal Judge blocking the implementation of the new white collar overtime exemptions announced many many months ago by the Department of Labor, Employers will be forced to implement this sweeping change.

Here at HRFix.com we provide HR assistance to hundreds of small employers, many with less than 50 employees who quite often contact us in regards to potential misclassification of employees as exempt when they should be nonexempt.

Quite often when employees are upset about a myriad of other issues, how they are paid will typically make its way into the conversation and quite often we discover that the employee is indeed paid incorrectly. Rarely do we come across a situation where someone is paid hourly with overtime and they believe they should be paid a set salary... no it is always the other way around.

The biggest conundrum these employers face is how do I correct the pay problem without raising a red flag and being sued for back pay? How do we explain to this employee that we need to change how they are paid because we were wrong and they really were entitled to overtime all these years?

Well this new overtime rule change provides a perfect reason to get in compliance with the Fair Labor Standards Act without raising a lot of questions. How? Simply the employee that the new law has required you to change the way certain employee have been paid. Most of your employee’s have already heard of the new overtime law and wonder if and how it may affect them. This is the perfect time to make those changes and simply blame it on the new law!

This new law will provide you the Employer the opportunity to make the required changes under the guise of the new law and will limit questions as to why the change all of a sudden and what is in it for me….

So, what is the new law and what must you do as the employer?

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

·       Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);

·       Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and

·       Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, 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. (Key phrase here is “Up to 10%”.)

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

If you would like assistance in determining if your employees are correctly classified and if their current classifications and pay meet the requirements of the new rule, please give us a call at 866-240-6618.