This week the U.S. Department of Labor announced a revision to the Fair Labor Standards Act (FLSA) that raises the minimum salary for exempt employees to $47,476 a year. According to the Department of Labor, around 16,000 Hawaii workers will be affected by this change based on their current salaries.
The new regulation goes into effect this year on December 1, 2016. At that time, salaried employees who earn $47,476 a year ($913 a week) or less must be paid overtime if they work more than 40 hours a week, even if they are classified as a manager or a professional. Overtime pay must be at least 1.5 times their regular hourly pay rate.
This new regulation will impact Hawaii employers who currently have employees with salaries less than $47,465. They are re-evaluating what it means to their compensation schedules and how it will impact their business. Possible impacts are:
- Increase employees’ salaries to the new threshold ($47,465), to avoid paying overtime
- Move salaried employees to an hourly rate, understanding that overtime will have to be paid if they work more than 40 hours a week
Changes to exempt status and salaries will affect payroll, and as a result may affect Workers’ Compensation insurance premiums.
In addition, the new regulation states:
- Nondiscretionary bonuses, incentive payments and commissions, paid at least quarterly, can account for up to 10 percent of the standard salary threshold.
- For highly compensated employees (HCEs), who are generally considered exempt without regard to the duties test, the salary threshold is raised from $100,000 to $134,004.
- The minimum salary threshold will increase every 3 years. Based on current projections, the salary threshold would rise to over $51,000 with its next update on January 1, 2020.
Employees are covered by the FLSA if their employer has annual gross sales or does business of $500,000 or more. In addition, regardless of the amount of business done, organizations covered by FLSA include hospitals, businesses providing medical or nursing care for residents, schools and public agencies. Even if an employer is not covered on an enterprise-wide basis, employees may be individually covered by the FLSA if their work regularly involves them in commerce between states (interstate commerce), or if they are engaged in the production of goods for commerce.