On March 13, 2014, President Obama issued a memorandum directing the Department of Labor (DoL) to update the regulations that define which “white collar” employees are protected by the overtime standards of the Fair Labor Standards Act (FLSA). On May 28, 2016, the DoL issued its Final “Overtime” Rule, which more than doubles the previous salary threshold for determining which employees are entitled to overtime. Prior to the rule change, only white collar workers making less than $23,660 annually (or $455 per week) were entitled to overtime if they worked over forty (40) hours per week. Under the new rule, white collar employees making less than $47,500 annually (or $913 per week) will be entitled to overtime when working over forty (40) hours in a week. The DoL has estimated that the new overtime rules will be extended to 4.2 million workers. Subject to the implementation of a Court Injunction as requested by more than 20 State Attorneys General, the new regulations are scheduled to take effect on December 1, 2016. Employers should begin planning for the change now.
Who is Impacted?
The new rules also do not change the classification of job duties that make an employee exempt from the FLSA. Rather, the new rules primarily affect those employees who are properly classified as executive, administrative or professional employees, and whose salary is between the old threshold and the new threshold.The new regulations require a worker to satisfy three criteria to be exempt from overtime requirements. First, they must be paid on a salary basis that is not subject to reduction based on quality or quantity of work rather than on an hourly basis (the “salary basis test”). Second, their annual salary must be more than $47,476 ($913 per week), for a full-year worker (the “salary level test”). And finally, the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “standard duties test”).
The new regulations continue to provide an exemption for employees who may not technically meet the “standard duties test,” but who are considered “highly compensated.” Under the new regulations, the threshold of exemption for these highly compensated employees has increased from $100,000 to $134,000 per year. In addition, certain professionals continue to remain exempt from FLSA requirements. Teachers, lawyers and practitioners of medicine are not subject to either the salary basis test or the salary level test.
On a positive note, for the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to ten percent (10%) of the standard salary level, provided these payments are made on a quarterly or more frequent basis.
Employers should begin planning for the new regulations now. First, employers should identify all employees who were previously classified as exempt executive, administrative or professional employees, but whose salary is below $47,500 annually (or $913 per week). For employees close to the threshold, employers should evaluate whether to raise the employee’s salary to maintain exempt status, or keep their salary below the threshold and pay overtime for work in excess of forty (40) hours per week. Employers may also consider converting salaried employees to an hourly rate and paying overtime, which may end up reducing overall costs.
Employers should also identify any “highly compensated” employee that formerly did not meet the “standard duties test,” but who make between $100,000 and $134,000 per year. These positions should be reevaluated to determine whether certain job responsibilities may be adjusted in order to classify the position for a “white collar” exemption.
Employers may decide to evaluate workload distributions and employee schedules in order to comply with the regulations. For example, if a position contains certain administrative, executive or professional duties, those duties may be assigned to other exempt employees who are already above the salary threshold. For employees who are no longer considered non-exempt under the new regulations, employers should consider putting controls and policies in place so that employees do not incur overtime hours without prior employer approval.
Finally, because the new regulations go into effect on December 1, employers m ay want to begin adjusting annual salaries prior to the New Year .
For additional information on the implementation of the new FLSA Overtime regulations, feel free to contact the attorneys of the Kroger Gardis and Regas Business and Municipal Practice Groups at firstname.lastname@example.org or email@example.com.