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Department of Labor Finalizes Changes to Overtime Rules

Posted May 18, 2016 10:05 AM
On Wednesday, May 18, 2016 the U.S. Department of Labor announced final changes to overtime rules, acting under the authority of the Fair Labor Standards Act (FLSA). The final rule focuses primarily on redefining who is considered "exempt" from federal overtime compensation laws. These changes will affect the for-profit and nonprofit sectors alike.
Please visit our update to this blog post with new tools and additional information.

After months of speculation, the U.S. Department of Labor (DOL) announced on Wednesday, May 18, 2016 final changes to overtime rules. Acting under the authority of the Fair Labor Standards Act (FLSA) that was passed in 1938, these new regulations will affect for-profit and nonprofit personnel alike.

The final FSLA rule focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional workers to be considered “exempt.” The new regulations will:

  1. Set the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region, currently the South ($913 per week; or $47,476 annually for a full-time worker).
  2. Set the total annual compensation requirement for highly compensated employees (HCE) – subject to a minimal duties test – to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004).
  3. Establish a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Are there any changes to the exempt duties test?
No, but it is important to remember that white-collar employees can be exempt from overtime only if their jobs meet all three tests for executive, administrative, or professional employees. In addition to receiving a salary at or above the new thresholds, each exempted employee must also exercise the job duties of those categories and be paid on a salaried basis. For more information refer to Classifying Employees Correctly or reach out to us at hrconsults@501commons.org.
What does it mean for your organization?
Nonprofits with budget years ending on June 30 will need to develop new budgets for the fiscal year beginning in six weeks that take these new changes into account. Nonprofits with budget years ending on December 31 have more time to adjust and plan for 2017.
What options do you have to comply with these change in overtime rules?
Employer have various options ranging from increasing exempt employees’ salaries to the new level, converting them to hourly employees and paying overtime, or making other changes to benefits or operations. See Part III of the DOL special guidance for nonprofits for more information.
In an effort to address longstanding confusion about how the Fair Labor Standards Act (FLSA) and the overtime regulations apply to nonprofit employers and employees, the Department of Labor (DOL) also published a special overview and guidance for nonprofit organizations.
The effective date of the final rule is December 1, 2016.
Click to download a helpful checklist that can help your nonprofit’s administrative team start planning for changes to the FLSA laws. You can also download a PDF of the infographic shared above.

Please join 501 Commons for an informative webinar on June 16 from 1:00 to 2:00 p.m. discussing these changes. Hosted by Nancy Kasmar (Principal at Compensation Connections LLC, a partner of our Statewide Nonprofit Resource Directory), this FREE webinar will allow you to learn how the overtime rule changes will affect your organization and what you should do ahead of time to prepare for it.
Need help?  Contact us for an HR Quick Consult by sending your questions to hrconsults@501commons.org or filling out a Request for Assistance to get help in planning to implement the new rules. 501 Commons’ HR consultant will respond promptly. (Note that it may be important to seek legal counsel on this issue. Low budget organizations can contact Wayfind for assistance).