New Overtime Rules: Update for Small Business and Non-Profits

The long awaited changes from the Department of Labor (DOL) to the Fair Labor Standards Act (FLSA) were issued on May 18, 2016 and will likely have a big impact on business, particularly small businesses and non-profits. The changes to the FLSA are effective December 1, 2016 giving employers 6 months to make any necessary adjustments and become compliant with the new regulations on overtime rules.


From here on out, the way employees are classified between exempt and non-exempt will not be as it was before. There will be more employees eligible for overtime pay who previously were not eligible for overtime pay.


Here are a few of the key points that are included in the new overtime rules:


  • The new weekly salary threshold for white collar employees is set at $913 per week, an increase from $455 per week. This new rate is based on the 40th percentile of full-time salaries workers in the lowest-wage Census region, rather than the previous fixed weekly salary.


  • The new annual compensation threshold for highly compensated employees is $134,004, an increase from $100,000 annually. This is based on the 90th percentile of full-time salaried workers nationally.


  • The thresholds will automatically adjust to meet the required standards every three years, beginning on January 1, 2020.


The compensation threshold is the first requirement in the test to determine the proper classification of employees. Once that compensation threshold is met, the duties test requirements must be met to qualify as Exempt. However, no updates were made to the duties test and those should be followed as they were previously.


Although Congress still has an opportunity to overturn the new rule and take action before July 17, 2018, the President has veto power over any such joint resolution by Congress.


With these changes, there is the potential for a significant financial impact on your business and it will change how you classify and, therefore, manage your employees. There are a variety of things to consider when reclassifying someone from Exempt to Non-Exempt.

Such as:

  • Tracking hours, budgeting for overtime pay, reviewing your compensation plan, reviewing policies related to tracking time and re-evaluating telecommuting as an option for employees.
  • The issue of morale for workers being re-classified from Exempt to Non-Exempt.
  • The impact it has (if any) on available an employee’s benefits.
  • Training for managers on making the change from managing exempt employees to non-exempt employees.
  • Redistribution of job duties based on the classification change from exempt to non-exempt. It is important to ensure that the job descriptions are updated to accurately reflect the role.
  • Managing the communication to employees about the change and what it means for their job.

For more information on new over-time regulations and FLSA updates, click here.

Employers Advantage LLC, can help both small businesses and non-profits become compliant with the new over-time regulations. For more information, contact us.