New Federal Rule on Overtime Effective December 1

Does your community employ workers? If so, it's essential to be aware of the upcoming changes to the Fair Labor Standards Act (FLSA) regulations. These changes are set to take effect on December 1, 2016, and they could have an impact on your financial planning and business operations.

The FLSA is a federal law overseeing, among other things, the requirements for minimum wage and overtime pay. The upcoming revisions focus on redefining exempt employees—those who aren't eligible for minimum wage or overtime. Many exempt workers offer on-site services at managed properties and provide property management support.

Changes to the FLSA

The Department of Labor has revised its regulations, raising the minimum salary threshold for white-collar exempt employees. The threshold has increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). Consequently, most employees classified as overtime-exempt will need a minimum weekly salary of $913, regardless of hours worked. This new salary base will be effective starting December 1, 2016, and is scheduled to increase automatically every three years from January 2020. In some states, the baseline may surpass the federal level, so consulting your association’s legal adviser for clarification is advised. If an employee earns less than $913 per week, they must be reclassified as non-exempt, have their work hours recorded, and receive time and a half pay for any overtime beyond 40 hours in a workweek. This adjustment is poised to extend overtime eligibility to more workers nationwide.

What Your Community Must Do

Communities have two primary options for employees currently exempt from overtime but earning less than the $913 weekly threshold: either raise their salary to meet the new minimum or reclassify them as non-exempt, track their hours, and provide overtime pay as necessary. Both options could increase costs for your association, and neither decision is straightforward.

According to the U.S. Bureau of Labor Statistics, the median annual salary for community association managers is $55,380. This figure indicates an equal split of managers earning above and below this amount, signifying a substantial number fall short of the new overtime exemption threshold. Preserving their exempt status requires raising their salaries to at least $913 per week.

How to Find Out More

Inquire with your property management firm about how it plans to adapt to these new overtime regulations. For self-managed communities, consulting with your association attorney or an employment lawyer can provide further guidance.

Federal and State Law Requires Overtime Pay for Non-Exempt Associates

Under the Fair Labor Standards Act, employers are required to pay overtime at one and a half times the regular wage for hours worked over 40 in a workweek. Some states have additional regulations demanding overtime pay in other scenarios. Employees eligible for this are labeled as "non-exempt." To categorize someone as exempt, they must pass both a "duties test" and a "salary test" in accordance with federal and state law.

Exempt Associates Are Not Entitled to Overtime Pay

Certain "exempt" employees under the FLSA aren't owed overtime wages, even if they work beyond 40 weekly hours. Exemption qualification generally hinges on job duties and salary payments. While the current FLSA updates concern the salary criterion, adjustments to the duties test could also emerge. The FLSA includes various exemption categories, like the Executive, Administrative, and Professional exemptions, along with others such as the Computer Employee, Highly Compensated, and Outside Sales exemptions. Additional exemptions are recognized by the FLSA and relevant state laws.