Starting December 1, 2016, a new overtime rule goes into effect that employers should be aware of that will impact employees on salary. The Fair Labor Standards Act (FLSA) is a federal law that applies to all employers across the country. It guarantees a minimum wage to all employees as well as overtime compensation if over 40 hours a week is worked. Overtime pay is calculated at a rate not less than one and one half the employee’s regular rate of pay for all time worked in a week in excess of 40 hours. Many employers are under the mistaken belief that if they pay an employee a salary that the overtime laws do not apply. This is incorrect. Weekly salary divided by 40 (hours) must not be lower than the federal minimum wage then in effect. As with any law there are exemptions and this is the focus of the new overtime law for salaried employees.
Under the law as it currently stands, there are overtime exemptions for employees who perform professional, executive, administrative, outside sales or computer functions. These exemptions are referred to as white collar exemptions. To be considered exempt, employees must meet certain minimum criteria related to their primary job function and must be paid on a salary basis of not less than a specific minimum amount set by the Code of Federal Regulations (CFR). Today that minimum amount under the CFR is not less than $23,660 annually which translates to a weekly salary of $455. Stated differently, your employees are not entitled to overtime pay if you pay them at least $455 a week and their primary duties fall under the “white collar” exemptions.
Effective on December 1, 2016, this changes drastically and modified white collar exemptions will be put in place. The minimum amount required to be paid on an annual basis will be increased to $47,476, which translates to $913 a week. If an employer pays its employee a salary of less than the $913 floor, the employee will now be entitled to overtime. In addition, the highly compensated exemption will be increased from $100,000 to $134,000. The new law also has automatic increases every 3 years tied to certain performance indices.