September 26, 2016

FLSA Overtime Exemptions Take Effect on December 1: What Does This Mean for Your Employee Benefit Plans?

2 min

The Department of Labor's revisions to the FLSA's "white collar" and "highly compensated" overtime exemptions take effect on December 1, 2016. As we have explained in earlier alerts, these changes may require substantial revisions to employers' compensation-related practices. However, employers must also consider the ways in which the new rules will affect their employee benefit plans. For example:

  • If a retirement, health, or life insurance plan provides differing benefits to non-exempt and exempt employees, reclassifying such employees in response to the DOL's new rules may simultaneously impact the plan's ability to pass applicable non-discrimination tests.
  • In order to defray the potentially-increased costs arising from the DOL's new rules, certain employers may consider reducing the employer's share of health-plan premiums and increasing the employees' share. This adjustment may cause the benefits to become "unaffordable" for certain employees, thus triggering higher employer penalties under the Affordable Care Act.
  • Employers who eliminate matching 401(k) plan contributions as a means of defraying the cost associated with the new rules could simultaneously imperil the plan's "safe harbor" status, potentially causing the plan to fail non-discrimination testing.

The bottom line: In making adjustments in order to deal with – or minimize the impact of – the new FLSA exemption rules, employers must carefully consider whether such "solutions" would, in fact, introduce new, benefits-related problems. At the very least, benefits-related cost-saving measures like those mentioned above will typically require advance, written plan amendments, as well as updates to other documents that describe employee benefit entitlements.