U.S. Department of Labor Announces Final Rule on Overtime Exemption

The U.S. Department of Labor today issued its much anticipated final rule on the overtime exemption for “white collar” workers under the federal Fair Labor Standards Act. The final rule is expected to impact the overtime eligibility of 4.2 million workers who are currently classified as “exempt” (non-overtime eligible) under the executive, administrative and professional exemptions. The new rule is expected to cost employers $12 billion in overtime wages over the next decade.

The final rule takes effect on December 1, 2016, giving employers just six months to comply.

Under the new rule, the minimum salary threshold for the overtime exemption increases from $23,660 to $47,476 annually – or $913 per week. The rule provides for this rate to adjust automatically every three years based upon that same standard. The minimum annual salary threshold is expected to increase to more than $51,000 in 2020. The salary test, however, still does not apply to teachers. Also, the current “duties tests” for the executive, administrative and professional exemptions remain unchanged.

Given this development, we recommend that employers take the following steps immediately in preparation for the December 1 effective date:

1) Review the salary ranges of the positions in your school corporation that are currently considered exempt under the executive, administrative and professional exemptions.

2) For those classifications that straddle or fall below the new salary basis threshold, consider whether to adjust them upward to maintain the exempt status, or whether to reclassify them as non-exempt, overtime eligible, but only after first confirming that these employees indeed meet the applicable duties test.

3) For any positions becoming non-exempt, develop a plan to begin recording hours worked. Employers are required to keep accurate records of hours worked on a weekly basis for non-exempt workers. It may be helpful to begin tracking those hours now in order to better plan for the overtime conversion later this year.

4) Develop a strategy to convert employees to an overtime eligible pay methodology that complies with the new rule, minimizes the economic impact on your school corporation, maintains pay consistency for workers, and accounts for issues of employee morale.

5) If you want to continue to pay affected employees on a salary basis (rather than shifting these employees to hourly), consider whether the fixed salary for fluctuating hours (or flexible work week) overtime methodology may be available or whether you may want to implement a compensatory time policy.

The attorneys in the Education Law Group of Bose McKinney & Evans are available to answer your questions and provide guidance as needed to comply with this far-reaching new law.

About Jon Mayes

I am an attorney in the Education Law Group of Bose McKinney & Evans LLP where I advise schools inlegal issues such as property transfers, public records requests, and general legal matters. I have significant experience in the labor and employment context, advising public employers on dismissals, internal investigations, handbook drafting, and compliance with federal and state laws (e.g., constitutional provisions, Title VII, ADA, FMLA, FLSA, ADEA, and Indiana wage payment laws).
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