Legal Alerts May 18, 2016

The Dramatic Effect of the Department of Labor’s New Overtime Rule

Employers Will Need New Policies to Ensure Compliance

The Dramatic Effect of the Department of Labor’s New Overtime Rule

Effective immediately, the U.S. Department of Labor has updated the regulations governing which executive, administrative and professional employees (white collar workers) are entitled to the Fair Labor Standard Act’s minimum wage and overtime pay protections. The salary threshold for exemption for white collar workers has stood at $455 per week ($23,660 per year) — or approximately the 20th percentile of earnings for full-time salaried employees — for more than a decade. This new rule dramatically increases the minimum threshold to be reset annually at the 40th percentile of weekly earnings for full-time salaried workers. For this year, this means that all white collar workers who make less than $913 per week ($47,476 per year) are now entitled to overtime for any work over 40 hours per week. The rule will take effect on Dec. 1.

By the Department of Labor’s own admission, this rule change will have a serious effect on employers. Indeed, the Department of Labor estimates that 4.6 million workers exempt under the previous salary threshold are now entitled to overtime protection under the FLSA. As a result, the Department of Labor estimates that the average direct employer costs will total approximately $239.6 million per year. Additionally, the Department of Labor estimates that this new rule will transfer income from employers to employees in the form of higher earnings at approximately $1.18 billion annually.

The explicit goal of this new overtime rule is to reduce misclassification of overtime eligible workers and establish what the Department of Labor believes is the most appropriate demarcation line between exempt and nonexempt white collar workers. In addition, this rule will create numerous compliance issues for employers and force them to make significant changes to their operations. Employers will need to consider putting in place policies that reduce the risk that an employee may perform unscheduled work that goes beyond 40 hours per week, as well as policies governing whether and how employees are allowed to work from home, where their time has less direct oversight. As noted by Forbes earlier this month, the average wage and hour settlement payment costs companies approximately $6.9 million, and businesses simply cannot afford to ignore this dramatic change in the law.

For more information about this decision and how it may relate to your agency or business, contact the attorney authors of this Legal Alert listed at right in the Labor & Employment practice group, or your BB&K attorney.

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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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