New Federal Overtime Rules – May 2016

New Federal Overtime Rules

On May 18, 2016, the Department of Labor released its final rule regarding overtime regulations which will require franchisors and franchisees alike to pay overtime to managers and other administrative employees making less than $47,476 per year.

Under the new rule, scheduled to take effect December 1, 2016, the minimum salary threshold at which executive, administrative and professional employees are exempt from the overtime pay requirements of the Fair Labor Standards Act has been increased from $23,660 per year ($455 per week)to $47,476 per year ($913 per week).  For highly compensated employees, the total annual compensation requirement has been increased from $100,000 to $134,004 per year.  The new thresholds shall be subject to automatic updates every three years, beginning January 1, 2020.

The Fair Labor Standards Act applies to any enterprise engaged in interstate commerce and grossing $500,000 annually, and imposes certain requirements on employers regarding minimum wage and hour requirements.  For nonexempt employees, the FLSA requires that employers pay a minimum wage, pay overtime at a rate of one and a half times the employee’s wage for hours worked in excess of 40 in a work week, and keep adequate records of hours worked and other information.

The Department of Labor’s website has listed the following steps an employer may take in order to comply with the new changes:

  • increasing the salary of an employee currently subject to the exemption to at least the new salary level to retain his or her exempt status;
  • pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
  • reduce or eliminate overtime hours;
  • reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
  • use some combination of these measures.