In May 2016, the U.S. Department of Labor announced a significant change to the way employers may classify positions as “exempt” or “non-exempt” from overtime pay requirements under the Fair Labor Standards Act (FLSA). The change, which intends to provide US workers with either additional time away from work or additional pay via overtime pay, raises the minimum salary threshold for employees to be classified as “exempt” from overtime from $23,660 to $47,476 per year. This change in threshold means that, regardless of the duties performed, positions paying less than the annual threshold will be required to be paid on an hourly basis and be eligible for overtime effective Dec. 1, 2016.
Overtime Pay Requirement
“Exempt” means the position is exempt from overtime pay requirements. Employees in exempt positions do not receive additional pay regardless of the number of hours worked over forty in a week. “Non-exempt” positions are eligible for overtime pay (at a rate of one and one-half times the employee’s normal hourly rate) for any hours worked over forty in a seven-day work week. The University of Kentucky work week runs from 12:01 a.m. Sunday through 12:00 midnight Saturday.
The change in the law will require the University to reclassify positions paying less than the salary threshold of $47,476 per year to “non-exempt” position. This means employees in these positions will become eligible for overtime, paid on an hourly basis and transition to the biweekly payroll cycle. Employees currently in exempt positions paying more than the new threshold $47,476 per year will generally not see any changes; however, if other positions in the same job title pay less than the threshold, all positions within the job title may be reclassified to “non-exempt”.
Employees currently in non-exempt positions (hourly paid and currently overtime pay eligible) will not see any changes.
Key points for those impacted:
- Individuals in positions reclassified to “non-exempt” will see their salaries converted to an hourly pay rate.
- These individuals will be paid on the biweekly payroll cycle rather than the monthly payroll cycle.
- These individuals and their supervisors will be responsible for submitting and approving hourly timesheets in accordance with the payroll cycle to ensure the employee is paid in a timely and correct manner.
- These individuals and their supervisors must communicate about workload and potential overtime pay needs (all overtime must be approved by the individual’s supervisor in advance)
While the intended outcome of the FLSA changes are positive (either more time away from work or more take home pay), this is a significant transition which can be challenging. Current commitments to assist with meeting this challenge include:
- Individuals in positions reclassified to “non-exempt” will be paid for all hours worked, including overtime when more than 40 hours are worked in a week.
- Supervisors and employees in reclassified positions will be offered training on the systems and processes associated with the hourly pay cycle.
- Vacation and sick leave accruals for individuals whose positions are reclassified will remain the same.