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November 22, 2016

Employers: Are You Prepared for the New Overtime Rule?

Update: As of 11/22/2016, a federal judge has temporarily blocked the new overtime rule. 


December 1 is just around the corner, and that’s when the Department of Labor’s (DOL) new overtime rule officially kicks in. It’s been a long battle and a time of uncertainty for employers, but the fix is now in. Beginning December 1, 2016, the final overtime rule:

  • Raises the salary threshold for exemption from overtime requirements to $913 per week or $47,476 per year for salaried employees, and from $100,000 to $134,004 per year for higher paid employees
  • Automatically updates the salary threshold every three years based on wage growth over time
  • Fortifies overtime protections for salaried workers who are already entitled to overtime
  • Provides greater clarity for employers and their employees

The new overtime rule will impact an estimated 4.2 million U.S. workers currently eligible for overtime pay. Here’s a partial breakdown of how many workers are affected by state:

  • California: 392,000
  • Oregon: 46,000
  • Washington: 76,000
  • New York: 278,000
  • Missouri: 85,000
  • Texas: 370,000

But contrary to what many employers think, there’s more than one way to comply.

For some reason, many employers are under the impression that the only way to comply with the new overtime rule when they have employees who earn less than $47,476 annually is to change them from salaried to hourly. But there are other options:

  • Raise salary and keep the employee exempt from overtime. This option works for employees who have salaries close to the new salary level and regularly work overtime.
  • Pay overtime on top of the employee’s salary when necessary. This option works for employees who work 40 hours or fewer in an average workweek, but have occasional spikes that require overtime.
  • Adjust hours and staff workload. There’s no requirement that an employee must have a predetermined schedule, and nothing prohibits working whenever, wherever, or however the employee and the employer agree.

FLSA enforcement is ramping up.

Between the new overtime rule, the increased scrutiny of employee classifications, and evolving minimum wage laws, employers are facing substantial changes in the way they compensate their workers. That means even more compliance headaches, and the DOL, the IRS, the Employee Benefits Security Administration (EBSA), and other agencies are promising to ramp up their enforcement activities. In 2015, the DOL alone collected $246 million in back wages for more than 240,000 employees from employers who were noncompliant with the Fair Labor Standards Act (FLSA).

These changing laws all share a common threat: an increase in Employment Practices Liability (EPL) risks for employers.

The past decade has seen a staggering 253 percent increase in the number of wage-related lawsuits filed in federal court. The cost to defend these claims is also skyrocketing, with average wage and hour settlement payments about $6.9 million from 2007 to 2015 according to NERA Economic Consulting. On top of that, cases can drag out in the courts for 18 to 24 months before reaching a settlement.

Make sure you’re ready

With employment laws in flux and EPL risks on the rise, now is a good time to conduct a thorough review of your employment, payroll, and recordkeeping practices, as well as your employee job descriptions and classifications. For assistance, see the DOL resources at https://www.dol.gov/compliance/ and https://www.dol.gov/whd.

Don’t forget financial protection.

If you run a business and have employees, you’re at risk – and if you’re not carrying Employment Practices Liability Insurance (EPLi), you’re raising the stakes on that risk considerably. In fact, you’re risking the very survival of your business. Just one EPL lawsuit could wipe you out if you’re not prepared.

Is your business protected from this growing risk? Let the business insurance experts at Heffernan Insurance Brokers make sure you are. 


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