The Department of Labor (DOL) recently announced its long-awaited final updated rule governing which white-collar workers are eligible for overtime pay under the Fair Labor Standards Act (FLSA).1 Overtime pay is 1.5 times the pay rate and must be paid for hours worked in excess of 40 hours per week for nonexempt employees. All organizations must comply with the new requirements no later than December 1, 2016.
The final rule is intended to modernize and simplify overtime requirements and ensure the FLSA’s intended protections are fully implemented. To accomplish this, the DOL has:
The final rule is expected to extend overtime protections to nearly five million white-collar workers within the first year of its implementation. The DOL estimates that the final rule will transfer an average of $1.2 to $1.3 billion annually from employers to employees in the form of higher earnings. The average annualized direct employer costs — regulatory familiarization, adjustment and managerial costs — will total between $239.6 and $255.3 million per year.
The DOL states that employers are likely to respond to the new rule by either paying time-and-a-half for overtime work, raising workers’ salaries above the new threshold, limiting workers’ hours to 40 per week, or some combination of the above.2 The changes may also result in employers losing flexibility on how they manage their workforce, and may result in a perceived or actual loss of status and benefits for employees who are reclassified under the new rule.
Conducting an impact analysis should be the immediate next step for employers that have not already done so. An impact analysis involves:
The impact analysis should be followed by development of an implementation strategy, which includes:
Sibson works with employers to develop custom solutions to the full range of human capital needs. As a leader in helping organizations to prepare for and implement the new FLSA overtime changes, our professionals can assist you with:
For more information about how these new rules may affect your organization, please contact your Sibson consultant or the Sibson office nearest you.
1 The final rule was published in the May 23, 2016 Federal Register.
2 See the DOL’s May 19, 2016 blog.
3 Salary compression is the situation that occurs when there is a similarity of salaries despite different qualifications and/or experience levels. Two common examples of salary compression include: (1) when the pay of one or more employees is very close to the pay of more experienced employees in the same job and (2) when employees in lower-level jobs are paid almost as much as their colleagues in higher-level jobs, including managerial positions.
4 Because the Affordable Care Act requires employers with more than 50 employees to measure whether a worker is full-time (more than 30 hours per week or 130 hours per month) the FLSA analysis should take into consideration the Affordable Care Act process the employer has developed.
Update is Sibson Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.
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