Changes to overtime regulations may have major impacts on your business and labor costs. The key consideration for most companies is that these changes will make significantly more workers eligible for overtime. On May 18, 2016, The United States Department of Labor (DOL) published details regarding changes to the Fair Labor Standards Act (FLSA) overtime rules and organizations were given until December 1, 2016 to comply*.
* A U.S. District Court has temporarily blocked the new overtime rules from going into effect on December 1, 2016. Read the Eye on Washington to learn more.
ADP is here to help you understand the changes, remain compliant, stay on top of overtime tracking, and manage labor costs to protect your bottom line.
The changes to overtime regulations will make an additional 4.2 million workers or more eligible for overtime.
What you need to know
The Fair Labor Standards Act (FLSA) sets the federal standards for minimum wage and overtime, and also exempts certain employees from both. The United States Department of Labor (DOL) published its final changes to the Fair Labor Standards Act (FLSA) overtime rules on May 18, 2016. While the job duties component of overtime eligibility will remain the same, the thresholds for the salary tests have changed significantly. The changes will make an estimated 4.2 million workers eligible for overtime pay effective December 1, 2016.Exempt employees are determined by their duties, salary level, and how they are paid that salary. To qualify for certain exemptions from the FLSA minimum wage and overtime requirements under the new rules (and as of December 1), employees must:
- Be employed in an executive, administrative, or professional capacity, or in the capacity of outside salesperson
- Earn more than $913 per week (or $47,476 annually)
- Be paid on a salary basis
The final rule did not modify the duties component of the exemptions, but the standard salary level threshold was reduced from the proposed $50,440.
The salary threshold for overtime exemptions was set at the 40th percentile, or $47,476 per year ($913 per week). This is an increase from $23,660 per year ($455 per week).The new rule also allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary in the standard salary test. That is an amount equal to $91.30 per week or $4,747.60 per year.
Similarly, there has been an increase in the highly compensated employee (HCE) exemption threshold to the 90th percentile of annual earnings for full-time salaried workers. Currently, employees who perform certain duties and earn more than $100,000 annually are exempt. The proposal increases the annual compensation level to $134,004 per year.
Under the new rule, the DOL also established automatic increases every three years to the two salary thresholds, beginning January 1, 2020. This means that organizations will have to develop best practices in this area.
What the changes mean for you
The changes will make 4.2 million workers eligible for overtime pay. Many businesses already struggle with overtime eligibility, as well as overtime costs. The rule affects wage and hour compliance, for numerous businesses, and significantly impacts their labor costs. You should assess the potential impact of these changes to your business, and make plans to better manage overtime. Areas of your business that will be affected include:
- Employee classification
- Employee scheduling
- Compliance reporting
- Work Policies (such as time tracking, mobile devices, etc.)
How ADP can help
ADP time-tracking solutions make it easy to simplify wage and hour compliance, stay on top of overtime, and manage your labor costs. Plus, ADP HR business advisors can also help you understand the rules, so you’re confident that you’re in compliance.
Clarify wage and hour compliance
Our solutions help you understand and comply with wage and hour rules. All your workers are assigned to pay classes (e.g., hourly, non-exempt) based on the employment classifications you have selected so that, as their time is collected, you can apply the right time and pay rules.
By providing tools to help simplify wage and hour compliance, we help you to minimize the chances of facing costly complaints and penalties.
Better manage overtime costs
Our solutions help you account for hours accurately, and minimize overtime to protect your bottom line. You’ll get reports on overtime trends, features to fairly distribute overtime, tools to manage overtime requests and approvals, and timecard review. Plus, you can create and adjust schedules with visibility into who is approaching overtime.
Get more accurate payroll
Our time-tracking solutions integrate seamlessly with ADP payroll. That means less administrative burden and fewer errors. Plus, your employees get easy-to-understand pay statements, accessible from any device.