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Compensation Corner: New Overtime Rules Take Effect December 1, 2016 (and Non-Compliance Could Be Costly)

FLSA new Overtime rules

IMPORTANT UPDATE: On Tuesday, November 22, 2016, a U.S. District Judge suspended the December 1, 2016 implementation date of overtime rule changes in the Fair Labor Standards Act. While many businesses may be breathing a sigh of relief because they were in danger of non-compliance, the judge’s order may be merely a temporary reprieve. CLICK HERE to learn more.

If that ticking clock sounds louder and louder these days it’s probably because new overtime rules in the Department of Labor’s (DOL’s) Fair Labor Standards Act (FLSA) become effective December 1, 2016. And while more than 20 states are trying to halt or extend the implementation of these new rules, it’s likely that they will go into effect as planned – and could carry costly consequences for companies that fail to comply. As one of our valued strategic partners, we want you to know the facts and the risks:


Is Your Company At Risk?

As a recent high-profile company employee compensation scandal has shown, the federal government takes a dim view on apparently willful regulatory violations. And because the implementation period for the new overtime rules were longer than most (including notices, reviews, responses, etc.), experts anticipate the new rules – which were published in May of 2016 – will be implemented without delay. Unfortunately, many companies (perhaps most) haven’t taken the necessary steps to be ready and in compliance.

While it’s true that many companies might not be scrutinized to the point of inviting a Department of Labor audit, the fact remains that the DOL often targets specific industries. Is yours on the “hit list”? It’s hard to say, at this point. But it’s also true that if one or more employees file a complaint against your company asserting violation of the new overtime rules, your chances for a DOL audit increase dramatically. Typically, an aggrieved employee might file a complaint if they believe they have not been paid overtime when due, have been wrongfully terminated, or that their job title has been misclassified such that it exempts them unfairly from overtime pay.


A Refresher on the New Overtime Rules

As a reminder, the FLSA’s new overtime rules extend overtime compensation to more than 4 million U.S. workers not previously eligible for overtime pay. Whereas currently, full-time employees classified as executive, administrative or professional (EAP) are exempt from being paid time-and-a-half their base salary for hours worked over 40 per week if they earn at least $455 per week (the equivalent of $23,660 per year), the new rules increase the overtime eligibility threshold to $913 per week ($47,476 per year). Thus, the new regulations directly affect any EAP employee who currently earns a salary greater than $23,660 per year but less than $47,476 per year.

Other FLSA rules and provisions may affect how your employees are classified, but these may have been changed as well under the new regulations. Typically, we find that companies have trouble understanding what’s in the new overtime rules, how to apply them, and how to report and document employee pay to prove compliance. Beyond this, companies may have trouble with misclassification of part-time employees, as well as application of the administrative exemption in the FLSA’s exemption test.

Other problem areas abound, too. In short, this major revision to the FLSA may take many companies from safe ground to very shaky ground indeed. And December 1, 2016 is when the tremors become more intense.


The Bottom Line

While the new FLSA overtime standards will likely mean significant wage increases for millions of Americans, employers now face new compliance hurdles and likely new levels of scrutiny and the possibility of audit. Is your company ready? We are. Total Rewards Solutions stands ready to help employers understand these new overtime rules and their impact on total rewards and compliance. To learn more, contact us today at 317.589.8529.

Cassandra Faurote


About Total Reward Solutions:

Have a referral for us? Total Reward Solutions is your trusted partner for compensation and benefit services. As you recall, Total Reward Solutions offers a broad range of compensation, benefits, performance management, and reward/recognition consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.

Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.