The Fair Labor Standards Act (FLSA) governs overtime rules. The Department of Labor has proposed a change in who is potentially covered under the rules governing overtime pay. While this change is technically just “proposed” at this point, this is an area that does not require legislative action for the change to be enacted. At the present time it is fully expected to become enacted early in 2016. Having gone 10+ years without change the proposed increase will be a big financial jolt to many businesses.
This particular portion of the FLSA rules governing overtime is referred to as the “white collar worker” rule. The FLSA has historically provided a white collar exemption from overtime rules that covers certain executive, administrative, and professional employees from federal minimum wage and overtime requirements. Certain computer professionals and outside sales employees are also excluded from these requirements. The current salary level required for exemption is $455 a week ($23,660 for a full-year worker) and was last updated in 2004. We can all agree that inflation has caused wages and other items to increase since 2004.
The Department of Labor’s proposal would extend overtime protections to nearly 5 million “white collar workers” within the first year of its implementation. The new rules will apply to salaried workers. Under today’s regulations, employers generally don’t have to pay premium rates (that is, time-and-a-half) to salaried employees who earn more than $23,660 per year. The Labor Department has proposed to raise that threshold to $970/week or $50,400 annually in 2016, and to automatically increase it every year to prevent the level from becoming outdated again.
Any employee earning a salary less than $970/week or $50,400 annually may be entitled to overtime pay regardless of title and/or responsibility. It is important to note, as with many things, there are exceptions to the rule. The FSLA provides some relief from these rules, however the exemptions can be difficult to wade through. As this proposal moves closer to implementation we will provide more information on the categories of exemptions. If you have questions currently on the potential impact to your business, we urge you to contact your tax professional!