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Understanding the New Federal Overtime Rule

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On December 1, 2016, a new Rule will increase eligibility for overtime under the Fair Labor Standards Act [FLSA]. By way of background, the FLSA has two primary requirements: (1) employees must be paid a minimum wage; and (2) employees must be paid overtime for all hours worked in excess of 40 in a week. The FLSA also contains "exemptions" from the overtime requirement, and the new Rule affects the "white collar" exemption.

The new Rule increases the minimum salary threshold to qualify as an exempt (from overtime) white collar employee from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). This change will affect the FLSA exemptions for executive employees, administrative employees, professional employees, and some salaried information technology employees. In addition, to be considered exempt as a "highly compensated employee", where other white collar requirements are arguably relaxed, the minimum salary has increased from $100,000 to $134,003.

The new salary levels are not minimum wage requirements, and employers are not obligated to increase anyone's pay. The new salary thresholds are of concern only if the employer is claiming the subject employee is exempt from overtime under the white collar exemption, and the current salary is under the new threshold. Moreover, the remainder of the white collar exemption did not change, so raising an employee's salary to the new level, by itself, does not necessarily satisfy the FLSA's exemption for overtime and minimum wage protection. Instead, the employer must still satisfy all requirements of the applicable white collar exemption's "duties" test. Finally, neither job titles nor paying an employee a salary instead of an hourly wage make any difference under the FLSA.

To deal with the new wage threshold, an employer has four options: (1) increase an otherwise exempt employee's yearly salary above $47,476; (2) reclassify positions that pay under $47,476 from exempt to non-exempt, and pay overtime; (3) change salaried employees to hourly employees and "back in" to their current salary by calculating an hourly wage that is above the minimum wage but also accounts for overtime; or (4) restructure the workforce to limit overtime. Each of these options creates risks and opportunities for the employer that should be carefully considered before any changes are made.

If you have questions regarding the contents of this article, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.

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