The Department of Labor’s changes to overtime regulations will radically affect business owners as well as millions of white collar workers. In spite of recent lawsuits by states and business associations, the new rules are expected to take effect the first of December. It’s important to understand how these changes will affect you, and prepare.
What are the changes? The Overtime ‘Final Rule’ raises the salary threshold for paid overtime from less than $455 per week to $913 per week. In other words, to meet FLSA standards, salaried employees who make up to $47,476 a year will earn overtime (time and a half) if they work more than 40 hours a week. In addition, the salary test will be re-evaluated and increased every three years.
Why now? According to the Economic Policy Institute (EPI) “One reason Americans’ paychecks have not been keeping pace with their productivity is that millions of lower-middle-class and even middle-class workers have been working overtime but not getting paid for it.” One reason: the rule that identifies which white collar workers are protected by the Fair Labor Standards Act's minimum wage and overtime pay protections has not been updated since 2004. Today only 7% of salaried workers are eligible for overtime compared with 62% in 1975. Clearly middle class Americans are not getting paid for the time they work.
In the past, many businesses have classified workers incorrectly in order to avoid paying overtime. In fact the PIO estimates that approximately 4 million workers have been misclassified. By focusing on the salary threshold, the new rule is designed to simplify the process and eliminate the possibility of misclassification.
How many workers will be affected? According to the Labor Department (https://www.dol.gov/whd/overtime/final2016/faq.htm > Questions and Answers) an estimated 4.2 million white collar workers will become newly entitled to overtime protection because of the increase in the salary level.
Other organizations which include workers who were misclassified as exempt in their calculations, estimate that an astonishing 12.5 million American workers will be affected.
Which businesses will be affected? Generally the FLSA (Fair Labor Standards Act) covers employees of businesses and non-profit organizations that have an annual gross volume of sales or business done of $500,000 or more. But employees of hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies, are covered by the FLSA regardless of the amount of gross volume of sales or business done.
To further muddy the waters even if an employer is not covered on an enterprise-wide basis, employees may be individually covered by the FLSA if their work regularly involves them in commerce between States ("interstate commerce"). For more information on enterprise and individual coverage under the FLSA, see Fact Sheet 14: Coverage Under the Fair Labor Standards Act (FLSA). If you’re not certain whether or not FLSA applies to your business, give us a call.