Only One Month Until the Effective Date of the New Overtime Exemption Rule—Is Your Company Ready?

Written on November 01, 2016.

The increase in the minimum salary threshold for the Fair Labor Standards Act's (FLSA) overtime exemption takes effect December 1, 2016. As we have told you in previous blog posts, under the new rules, the minimum weekly salary that an otherwise exempt executive, administrative or professional employee must receive for the employer to be relieved of the obligation to pay overtime will rise from $455/week to $913/week ($47,476 per year).

In the retail sector, Wal-Mart announced its decision to increase the starting managerial salary at all stores by 7.8 percent—to $48,500 from $45,000. This has been characterized as a strategic move to avoid the hassle of tracking hours and paying overtime to newly eligible employees. Other retailers are faced with the challenge of either matching Wal-Mart or facing possible competitive disadvantages in recruiting managerial employees. It is expected that retailers will lock down their strategies in advance of the holiday shopping season to avoid unnecessary distractions. Most retailers have chosen one of two compliance strategies: either converting all employees earning between $23,660 and $47,476 to nonexempt hourly or raising everyone's salary above the new threshold to avoid overtime liability.

Another interesting development is that the UFCW believes the new rule will help its organizing efforts in the retail sector because the new rule will lead to the hiring of more hourly workers to take over some of the duties formerly performed by supervisors. That remains to be seen.

Practice tip: if a company wants to control overtime, it can implement a work rule that requires employees to seek supervisor or manager approval before working overtime. However, if an employee violates the rule and works unauthorized overtime, the employer must pay the overtime for the time worked. The employer can discipline the employee for violating a work rule, but it cannot refuse to pay actual overtime worked by an employee because it was unauthorized.