Understanding The Final Rule On Overtime Pay Under FLSA

Understanding The Final Rule On Overtime Pay Under FLSA

The American Department of Labor has recently released its final ruling regarding overtime eligibility for workers. These rulings were made under the FLSA, or Fair Labor Standards Act. It increases eligibility for overtime pay and will become enforceable by December of 2016. In the short term, this ruling will increase costs for businesses, but over the long term, employers c0uld save money due to greater employee retention percentage.

Who Does The FLSA Ruling Cover?

The FLSA covers any American worker who works more than 40 hours each week. Under FLSA, these workers are eligible for time-and-a-half pay. This ruling also covers workers employed by non-profits or any private firms which generate a minimum of $500,000 per year or higher. Those employed by the government, whether state, local or federal, are also included under this new ruling.

The FLSA may be applied to some workers individually, should they frequently perform interstate commerce. However, it is important to remember that interstate commerce is interpreted broadly by many courts, and can include things such as regularly sending letters to other states by mail or communicating by company telephones with other states.

Exemptions To Overtime

Employers can claim exemptions to making overtime payments, but in order to do this, a few criteria must be met. First, the worker’s pay has to have a minimum pay level, the worker must be paid a salary which is fixed, and the primary job responsibilities of the worker must be a form of work which is related to administrative, professional, executive or outside sales. Computer employees are also included.

Raising The Threshold For Minimum Salaries

The final ruling under FLSA also controls the minimum pay level which is needed for a worker to get exemption for overtime wages. For standard wages, the final rule will raise the wage level from $23,660 per year to approximately $47,476. For employees who are highly compensated, the final rule will raise the yearly compensation level from $100,000 per year to $134,000. These wage levels will be automatically updated every few years to avoid becoming outdated.

Incentive Wages

Although not permitted in the past, employers can now use non-discretionary bonuses and commissions.  These incentives can be used to match the salary thresholds which are necessary for exemption. However, there are limitations to these changes. For instance, only about ten percent of the wage level of the worker can be paid as incentive pay, and these payments must be made quarterly.

Each employer will need to reevaluate their workers in order to determine who qualifies for overtime. This decision should be made based on the three criteria which have been noted above, along with the update for the minimum pay threshold. Employers should also take into consideration the automatic updates which will be made every few years. The next automatic update for minimum pay thresholds should occur in 2020. The final rule will go into effect by December this year, which means that employers have approximately five months to make the changes necessary to meet the new regulations and remain in compliance.