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Compensation Highlights: Significant Overtime Rule Changes Could Impact Your Workplace and Bottom Line

As a valued client of Total Reward Solutions, we think it’s important for you to know about the proposed revisions to the Fair Labor Standards Act (FLSA) — new rules that could significantly impact your workplace, your compensation expenses, and your overall financial bottom line. When enacted, the proposed changes – which affect the FLSA’s overtime rules (and specifically, who qualifies to receive overtime pay) – will be the first changes to those provisions since 2004. The changes are expected to become law in 2016. Let’s take a quick look at the proposed overtime rule changes and how they might impact your employee compensation and other parts of your organization:

A New Threshold for Inclusion

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, however, will increase this threshold to about $970 per week (the equivalent of $50,440 per year). Nationwide, this could affect close to 5 million U.S. white-collar workers. It will impact any EAP employee on your staff who currently earns a salary greater than $23,660 per year but less than $50,440 per year.

The new threshold is based on the 40th percentile of average EAP salaries. The Department of Labor (DOL) also proposes to maintain that “line of demarcation” so the overtime standard keeps pace with the moving target of salaries year after year. The “duties test” also used to determine inclusion or exemption from overtime rules is not expected to change, although this is subject to formal comments from interested parties and the DOL’s response to those comments by way of revisions to the proposed updated regulation. The annual income threshold for “highly compensated” employees is proposed to move from $100,000 to $128,000.

What This Means for You

While it is not yet known when the proposed regulation might take effect, you should prepare your 2016 budget to be ready for it at any time. You will also want to be ready to update and implement new HR policies regarding what constitutes authorized overtime, as well as how time away from work for personal reasons are handled. The new rules may also have an impact on remote workers, as it will likely be more difficult to accurately determine hours worked and when overtime begins.

Part-time employee classifications could also be affected. And you might need to develop alternatives such as reducing benefits or staffing levels to help offset extra expenses in employee compensation. Of course, if you reduce staff, chances are you will have to pay the remaining staff more for working overtime unless your overall workload is also cut.

The Bottom Line

The proposed new overtime standards for the FLSA could mean significant wage increases for millions of Americans. For the employer, these changes represent a challenging environment in which hard decisions will need to be made in order to manage overall compensation policies and costs. The good news for employers is that Total Rewards Solutions stands ready to help you manage employee compensation and rewards programs as you work to remain competitive in your industry. To learn more, contact us today at 317.589.8529.

Cassandra Faurote