Will New DOL Standards Affect Your Practice?

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The Department of Labor’s (DOL) final overtime rules will become effective December 1, 2016.

The rules increase the minimum salary requirement for “exempt” status employees from $455 per week ($23,660 annually) to approximately $913 per week ($4,476 annually).

What does this mean for architectural firms and their employees? “It depends”, of course.  (You knew a lawyer wouldn’t give you a clear answer right out off the blocks.)

Background:

The Fair Labor Standards Act (FLSA) requires most employers to pay many employees at least the federal minimum wage for each hour worked, as well as overtime pay for time in excess of 40 hours in a workweek.  The FLSA allows for exemptions from minimum wage/overtime requirements for certain “exempt” employees.  These “exempt” employees must meet the minimum salary requirement and the employee’s duties must meet certain criteria as “administrative”, “professional”, “executive”, or “highly compensated” employees.

The criteria defining these four categories of exempt employees can be found here.      Note: The DOL made no changes to the duties test.

Final Rules:

The new rules effective December 1, 2016 may require firms to either re-classify employees or increase their salaries.

Every three years, the DOL will adjust the minimum salary requirement for the exempt employees to maintain it at the 40th percentile of full-time salaried workers in the lowest-wage region.

In addition, the minimum total compensation for the highly compensated employee exemption will increase from $100,000 per year to $134,004 per year on December 1, 2016.

For the first time, employers may use non discretionary bonuses, incentive payments, and commissions to satisfy up to 10 percent of the minimum salary requirement as long as these forms of compensation are paid at least quarterly; at least $913 must be paid on a weekly salary basis.

Recommendations:

Use the next several months to ensure your firm is in compliance.

  • Confirm exempt employees meet applicable exemption tests – both salary and job duties requirements.
  • Identify whether these employees’ salaries fall below $913 per week.
  • If current “exempt” employees fall below the new salary requirements you will generally either have to:
    • Raise their salaries to the new requirement; or
    • Reclassify the employee to an hourly employee and pay overtime whenever they work more than 40 hours in a workweek.

If exempt employees do not meet the new salary requirement and do not regularly work more than 40 hours per week you can simply re-classify them.  If these employees regularly work more than 40 hours per week and you want to keep the compensation costs the same, you will need to account for the overtime premium when you reclassify them as non-exempt.  Calculate the employee’s hourly wage using this formula:

[weekly salary]

________________________________    = $ New Hourly Rate

[40 hours + (avg. # overtime hours x 1.5)

Also, keep in mind that non-exempt employees must be paid for travel and training time.

For more information, contact an attorney or review the final rules at: https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm

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