Salary threshold in new overtime rules lowered

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The Department of Labor is set to officially announce changes today to overtime rules under the Fair Labor Standards Act. The rules will increase the salary threshold for overtime from $23,600/year to $47,476/year, according to a White House fact sheet.

And while the salary threshold in the final rule is lower than the amount in the proposed rule, it will still place a big burden on employers’ compensation plans, according to Lisa Horn, spokesperson for the Partnership to Protect Workplace Opportunity and director of congressional affairs at the Society for Human Resources Management.

“This token reduction in the salary threshold is still a 100% increase that will take place all at once in December,” she said. “Employers will not be able to absorb this increase, particularly in such a short time frame, and DOL’s token reduction will not alleviate the harm this rule will do to these small businesses, nonprofits, colleges and universities, and local governments across the country, their employees and the people and communities that they serve.”

The new rules, set to take effect Dec. 1, 2016, will disproportionately affect the hospitality and retail industries, according to Carolyn Richmond, co-chair of the labor and employment department and hospitality practice group at law firm Fox Rothschild.

“The new salary threshold will hurt a lot of owners in much of the U.S. as they are forced to grapple with a) a significant increase in salary to maintain the exemption – if at all – and b) very significant increases in overtime,” she said. “The likely scenario is management and staffing needs will be streamlined. Other than hospitality, retail will likely see the same results. And frankly, anywhere in the country where managers are paid less than $51k, employers will be faced with a large dilemma.”

The DOL will revisit the salary threshold every three years – a change from the proposed rule in which the overtime threshold was to be increased annually.
But the rule’s automatic increases ignore wider economic variables and employers’ specific budgetary constraints, said Horn. “These automatic updates threaten to impose serious hardships on public and private sector employers and employees without regard to economic circumstance of the time, which will have damaging consequences for the communities they serve.”

The Department of Labor will release three technical guidance documents, designed to help private employers, nonprofit employers, and institutions of higher education come into compliance with the new rule.

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Overtime rule Payroll Benefit compliance Law and regulation DoL