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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:
- 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).
- 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).
- 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.
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 firstname.lastname@example.org.
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.
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.