The Department of Labor’s (“DOL”) new overtime rules take effect December 1, 2016, and employers should be reviewing and modifying their compensation and payroll practices in response. Here is a link to the new regulations adopted by the Department of Labor:
As part of this preparation, employers must consider whether and how any changes to their compensation structures will affect their employee benefit plans.
The new overtime rules increase the salary levels at which executive, administrative, and professional workers may be considered “exempt” under the Fair Labor Standard Act (“FLSA”) from overtime pay when a work week exceeds 40 hours. Initially, the standard salary level will increase from $455 to $913 per week and the total annual compensation requirement for highly compensated employee exemption will increase from $100,000 to $134,004 per year. In addition to these initial compensation level bumps, additional upward adjustments are scheduled to occur every three years thereafter.
The immediate impact on this change is that currently classified “exempt” employees under the lower salary level, will no longer qualify for this status. As a result, if an employee is no longer exempt under the FLSA, overtime must be paid for work performed beyond the 40-hour work week.
Employers need to respond to these changes in a number of ways. Some are raising base salaries in order to classify additional employees as “exempt.” Others are planning to simply pay overtime where necessary. Others are planning to cap hours at 40 so that no overtime need be paid, or to meet their needs with part-time workers.
Regardless of the planned changes, effects on the employer’s benefit plans must be considered. The DOL’s new overtime rules will require many employers to make sweeping and expensive changes to their compensation practices. These changes may impact employee benefit plans in both intended and unintended ways. Employers are urged to conduct a thorough benefit plan analysis before making any sweeping compensation changes.
If you have questions about the rule, or how it may affect your company, please contact us.