RISK INSIGHT: The Insurance Impact of the “White Collar” Rule

Compliance, Employee Benefits, Property & Casualty

On May 17, 2016, the Department of Labor (DOL) issued a final rule regarding overtime wage payment qualifications known as the “White Collar” rule. The “White Collar” rule is part of the Fair Labor Standards Act (“FLSA”) and governs which executive, administrative, and professional employees (white collar workers) are entitled to the FLSA’s minimum wage and overtime pay protections.

Below is a quick review of the current law and final rule which takes effect on December 1, 2016.

Current rule:

  • The minimum salary level for the executive, administrative and professional exempt employees is $23,660 per year and the minimum salary for the highly compensated employees is $100,000 per year.

Final rule (effective December 1, 2016):

  • The minimum salary level for the executive, administrative, and professional exempt employees will be set at the 40th percentile of weekly earnings. This means that the minimum salary level increases to $47,476 per year. An employee making less than the new minimum salaried level is eligible for overtime.
  • The minimum salary level for the highly compensated exempt employees increases to $134,004 per year.
  • The DOL will automatically update the salary threshold every three years, based on wage growth over time.
  • The final rule will become effective on December 1, 2016, giving employers more than six months to prepare.
  • The final rule does not make any changes to the duties test for executive, administrative and professional employees.  

Given this timeframe, it is imperative to plan now for the impact of this rule. This final rule applies to all employers, regardless of size.

How to prepare:

We would suggest reviewing the new rules and spend time working on the following items. 

  • Audit your workforce and identify employees who will be impacted by this change. Remember, it is your salaried employees who are currently earning less than $47,476 that you must identify.  It is this group of employees who will need to receive a raise to the threshold or be reclassified as non-exempt.
  • Develop a strategy for how you are going to address the employees that are no longer exempt. Identify the most cost effective way to address those changes.
  • Evaluate your employment handbook. Do the changes to the exemptions require you to change any of your existing employee policies?  Do new policies need to be implemented to address the changes?  How will you communicate the changes to your employees?
  • Use the new law to ensure compliance at your organization and minimize the exposure for potential wage and hour litigation.

Once you’ve reviewed the questions above, look to address how this may affect your insurance coverages. 

  • Make sure any changes that you make to wages/salary for your employees are applied to the estimated payroll used in budgeting for your workers’ compensation coverage.
  • Check to see if you currently have an employment practices liability policy. If so, identify whether your policy includes coverage for certain expenses related to FLSA wage and hour disputes.  If not, contact your Account Team to discuss this defense coverage and any available options to add it to your existing policy.

Key Takeaway

Now that the final overtime rules have been issued with an effective date of December 1, 2016, we strongly recommend reviewing your employment practices and insurance coverages. It’s important to remember that all policies are not uniform and ensuring that your organization is in compliance with employment law is an important risk management strategy. We strongly encourage clients to work with your M3 Account Team to review and if necessary, modify the language in your insurance policies to reflect the new federal rules.

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