A new federal rule for overtime pay that becomes effective December 1, 2016, may increase an employer’s need for EPLI – employment practices liability insurance. In May 2016, the U.S. Department of Labor published a final rule updating its overtime regulations. For decades, the DOL’s federal wage and hour law, known as the Fair Labor Standards Act (FLSA), required employers to pay nonexempt employees overtime at 1.5 times an employee’s regular rate of pay for hours worked in excess of 40 per week. The DOL last updated the exemptions to the FLSA’s overtime standards in 2004.
The 2016 update expands eligibility for overtime pay by limiting exemptions. And states can expand overtime protections even further. If your business employs nonexempt workers, it is essential that you familiarize yourself with any updates to state-specific rules. EPLI coverage protects your business or organization and your employees when confronted with allegations that an employee’s rights were violated. EPLI provides protection for covered claims, relieving insureds from paying significant defense costs and potential settlements or judgments. Additionally, having the proper protection in place helps you attract and retain the most qualified people.
The new overtime rule effective December 1 more than doubles the salary threshold for exempt employees, increasing the number of employees eligible for overtime pay. In most instances, employers must reclassify salaried employees who earn less than $913 per week as nonexempt employees. This means that formerly salaried employees earning less than $47,476 annually will become eligible for overtime pay. Going forward, the DOL will update the salary and compensation levels automatically every three years. According to DOL projections, it is estimated that on January 1, 2020, the threshold will rise to $51,000.
The updated rule allows employers to consider some nondiscretionary bonuses, commissions and various types of incentive payments to satisfy up to 10 percent of the salary threshold.
If you have not begun implementing a strategy to comply with the updated overtime rule, now is the time to begin. A successful implementation strategy includes:
- A detailed transition plan
- Handouts explaining the new rules and transition timelines
- Talking points for managers responsible for discussing changes with employees
- Training on proper time-reporting procedures for reclassified employees
- Addressing changes in payment frequency or timing for reclassified employees
Like many employment issues, the new overtime guidelines can be complex. Contact your local independent agent to discuss EPLI coverage for your business.
Coverages described here are in the most general terms and are subject to actual policy conditions and exclusions. For actual coverage wording, conditions and exclusions, refer to the policy or contact your independent agent.