U.S. Department of Labor Modifies Overtime Pay Rules

Dear 4A’s Member:

We want to alert you to the U.S. Department of Labor release of modified employee overtime pay rules. The new rules which take effect on December 1, 2016 will have a material impact on many U.S. businesses including marketing service companies.

The Fair Labor Standards Act (FLSA) guarantees minimum wages and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. These protections extend to “non-exempt” workers.

The Department of Labor (DOL) has updated the regulations issued under the FLSA revising the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. The exemption, which is referred to as the FLSA’s “EAP” or “white collar” exemption, provides that to be considered exempt, employees must meet certain minimum tests related to their primary job duties and be paid on a salary basis at not less than a specified minimum amount. Since 2004 the standard salary level required for exemption has been $455 a week ($23,660 for a full-year worker). The modified DOL rules, which become effective December 1, 2016, increases the standard salary level required for exemption to $913 a week ($47,476 for a full-year worker).

Overtime Rules Modifications Summary
Highlights of several, but not all, of the noteworthy changes to the DOL overtime rules are summarized below:

  • Salary threshold subject to OT pay is set at $47,476.00 per year
  • Effective date of enforcement is Thursday, December 1, 2016.
  • Up to 10% of the new OT obligation can be met using bonus, commission and other incentive compensation.
  • Threshold will automatically adjust on a three-year cycle beginning in 2020

The new overtime rules that take effect on December 1, 2016 do not change existing standard duties test, i.e. the new rule is NOT intended to affect the definitions of exemptions (executive, administrative and professional).

Understand the New Rules
It is essential for your agency to understand the modified overtime rules including the parameters, definitions, implementation elements and time frames as well as going forward aspects of the rules changes.

For your convenience we are providing links to information sources that can help you get started with understanding the new overtime pay rules:

The Federal Register PDF of the Rules to be published by the Department of Labor Wage and Hour Division on 5/23/2016 is available to download at:https://www.federalregister.gov/articles/2016/05/23/2016-11754/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and

Supplemental information is available at the links provided below:

The new overtime rules are complex. Involve your legal and employee compensation subject matter experts as you evaluate modifications to your agency’s policies and pay practices in order to comply with the new requirements.

Develop Your Agency’s Plan for Implementing the New Overtime Rules The new overtime rules apply to virtually all businesses. The modified overtime pay rules will potentially have a significant impact on your agency’s operations.

In order to help members assess operating strategies related to implementing the new overtime rules, the 4A’s has developed a white paper Overtime Pay Rules: Agency Considerations which outlines a comprehensive range of factors that you will want to evaluate as you develop your agency’s plans for complying with the new rules. The white paper suggestions for agencies include:

  • Get the Facts-Understand the New Overtime Pay Rules
  • Assess Pay Grades and Overall Compensation Components Including Benefits Offerings
  • Evaluate Overtime Pay Policies, Monitoring and Controls
  • Consider Client Servicing & Client Compensation to the Agency

Agencies are urged to promptly initiate analysis, policy modifications, implementation processes and employee communications that are necessary to comply with the updated DOL overtime pay rules.

4A’s is organizing community events to facilitate information sharing and member discussion of operations considerations associated with the new rules. Stay tuned for notices relating to committee, council and forum meetings that will include discussion on the new DOL overtime pay rules. The association is also organizing a webinar that will include subject matter experts sharing their knowledge and suggestions with 4A’s members.

For additional information and updates on the overtime rules change view the 4A’s Overtime Pay Rules whitepaper and monitor our website.

Nancy Hill
President and Chief Executive Officer
[email protected]