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Understand the Impact of New Rules for Overtime Exemptions


5/24/16

Synopsis
 
On May 18, 2016, the Department of Labor (DOL) issued final rules regarding overtime and the exemption for employees serving in executive, administrative, and professional capacities (EAP), also known as the “white collar” exemption. The Administration has stated that it expects the new rules, which take effect December 1, 2016, to affect 4.2 million employees. The rules will have significant ramifications for many employers, including not-for-profits.
 
Issue
 
The Fair Labor Standards Act (FLSA) requires overtime to be paid to employees when hours worked exceed 40 hours per week. Employees serving (EAP) capacities are exempt from the overtime requirement as long as they meet criteria involving salary basis, salary level, and standard duties. The new rules did not change the salary basis or standard duties provisions, but did increase the salary level criteria.
 
Under the new rules, the annual salary level used in determining whether an employee qualifies for exemption was doubled, from $23,660 to $47,476. If an employee previously met the EAP exemption, in order to continue to meet the exemption, their salary must be at least $47,476. The new rules also raise the Highest Compensated Employee (HCE) threshold from $100,000 to $134,004. These salary thresholds will be adjusted every three years under the new rules. For published guidance from the DOL on the new rules, click here. For guidance from the DOL specific to the not-for-profit sector, click here.
 
What Does CohnReznick Think?
The not-for-profit sector will be greatly affected by the increase in salary threshold. Organizations will likely have to now pay overtime to EAP employees, or increase the salaries of EAP employees to the new level in order for them to continue to be exempt. Although the rules are not effective until December 1, 2016, NFPs need to consider these effects as they work on budgets for next year. Additionally, the cost of these changes should be considered when applying for grants, establishing indirect cost rates, calculating lobbying costs, determining retirement plan contributions, etc.
 
In the weeks and months ahead, there will be more clarity on the effects of the new rules. However, time is of the essence for identifying the costs of the rules to your organization and development of mitigation plans.

 
Contact

 
For more information, please contact Daniel O’Shea, partner in CohnReznick’s Not-for-Profit and Education Industry practice, at 301-664-8165 or daniel.oshea@cohnreznick.com. To learn more about CohnReznick’s Not-for-Profit and Education Industry practice, visit our website.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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