Tag Archives: overtime rules under the Fair Labor Standards Act

U.S. Dept. of Labor Makes Its Move

Employment attorney adam gersh

As long-time readers of this blog may recall, since 2015, the U.S. Department of Labor  has been trying to update its Fair Labor Standards Act  regulations to qualify more employees for overtime pay. For basic exemptions, meaning those that are not industry-dependent such as the administrative, executive and professional exemptions, employers may generally classify as exempt from overtime pay only employees who meet both a duties test and a salary test.  Since 2004, federal law allowed employers to designate salaried workers who earn at least $455/week (the equivalent of $23,660/year) and meet certain “white collar exemption” duties-test requirements as exempt from overtime.  This month, the DOL issued a proposed rule to increase that salary exemption to $679/week (equivalent to $35,308/year).  If adopted, salaried employees who meet an applicable duties test and earn more than $455/week but less than $679/week will no longer be exempt from overtime under the basic exemptions.  Importantly, the DOL proposed rule will allow employers to use nondiscretionary bonuses (for example incentive bonuses tied to productivity or profitability) and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the salary test.  The DOL is also proposing to increase the exemption that applies to highly compensated employees.  Currently, salaried employees who earn at least $100,000/year in salary are exempt from overtime regardless of whether they satisfy the applicable duties test.  Under the proposed rule, the highly compensated employee salary threshold will increase to $147,414/year, meaning employees paid less than that threshold amount will be subject to a duties test or other exemption.  The proposed rule does not seek a change to any of the duties tests for the basic exemptions.

Savvy employer takeaways: Employers need to evaluate their payroll to identify salaried employees who meet the applicable duties test but may no longer be exempt and assess whether increasing the employee’s salary or making the employee overtime eligible makes more sense.  Employers also need to consider applicable state law, which may be more restrictive than the exemptions permitted under the FLSA.

Questions? Let me know.

Employers Should Not Go Overboard On Proposed Changes to Overtime

Benny Frank ClockDespite last week’s alarmist press reports, employers can hold off on calling their payroll providers and authorizing overtime for previously exempt managers.  When President Barak Obama disrupted the news cycle by proposing changes to the overtime rules under the Fair Labor Standards Act, as is too often the case when the press reports on legal developments, many of the press reports covering the topic glossed over important details even suggesting that the President had changed the rules.  The President’s proposed rules have a number of hurdles to overcome before they transform overtime and there is significant opposition that may in fact limit or refine the proposed rules changes.

What is proposed?

Since 2004, federal law treated salaried workers who earn at least $23,660 and meet certain “white collar exemption” requirements as exempt from overtime.  Salaried employees who meet the white collar exemption need not be paid overtime, or even minimum wage, no matter how many hours they work.  For employees to be exempt from overtime, they must meet both the salary and the duties test, which means workers whose annual salary is less than $23,660 do not qualify for the white collar exemption and must be paid both minimum wage and overtime, even if they are otherwise white collar workers.

Under new rules proposed by President Obama, the threshold will move to $50,440 as early as 2016 and be adjusted annually based on the pay of the 40th percentile of full-time U.S. workers, although alternate methods of computing an ongoing adjustment are also being considered. If this rule is implemented in 2016, it would mean salaried employees whose annual earnings are less than $50,440 would not qualify for the white collar exemption even if they otherwise met the criteria for white collar employees.  Additionally, under the proposal rule changes, those classified as “highly compensated employees”  must earn at least $122,148 (rather than the current $100,000) in total annual compensation to be automatically exempt from overtime. This sweeping change is being touted as an income equality measure to combat employer’s practices of using the white collar exemption to avoid paying overtime to low level managers.  In essence, if adopted, the new rule will mean employees who earn between $23,660-$50,440 and were not overtime eligible will have to be paid for overtime if they work more than 40 hours in a workweek.

What is next?

The proposal is not ready to be adopted by the Department of Labor.  The Department of Labor is accepting comments from interested parties, including employers, for 60 days and considering additional changes which may materially affect which employees must be paid overtime.  For instance, the Department of Labor may refine other non-salary aspects of the white collar exemption tests.  Additionally, business groups and elected officials who oppose this change are vowing to fight it with legislation and litigation, which may delay its implementation.

What should employers do now?

First, employers should be sure that they are properly using the white collar exemption even for employees with salaries above the current threshold.  Employers need to remember that a salary that meets the threshold does not in and of itself make an employee exempt from overtime.   There are specific tests for executive, administrative, professional, computer, outside sales and highly compensated employee exemptions that depend on the duties these employees perform and recent court rulings have refined and narrowed the application of these tests.  Employers who have questions or concerns about compliance should consult with their counsel and consider a wage and hour audit to determine if they are currently in compliance with applicable federal and state laws regarding overtime pay.

Second, employers should plan for an increase in the salary threshold.  Even if this rule change is not fully implemented, employers should expect that the threshold will increase from its current level.  Employers, with the guidance of counsel, should begin to analyze how to best structure their workforces in light of coming changes.  For example, employers should be evaluating whether it makes more business sense to start paying more employees overtime or hire more staff or restructure certain aspects of their workforces.

Third, employers should be careful not to forget about compliance with applicable state wage laws, which differ from the federal law and will not automatically change, even if the federal law does.

In sum, employers should expect that, one way or the other, the white collar exemption will be narrowed and more employees will be eligible for overtime.  Now is the time for employers to ensure their current payroll practices and policies comply with the Fair Labor Standards Act and state law, but they can hold off on making any sweeping payroll changes until the new regulations are finalized and adopted, and the nuances of the new rules are ironed out.

Questions? Let me know.

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