New FLSA Overtime Changes: What Your Business Needs to Know
December 1st is quickly approaching, and amidst all the usual year-end prep, employers must be ready for the Department of Labor’s (DOL) final rule revising the current “white collar” exemption regulations. There has been some movement in Congress to delay the implementation of the revised rule to June 2017 to allow employers more time to adjust, but a prudent employer would proceed with the expectation that the final rule will be implemented eventually, and as early as December 1, 2016.
By way of background, the Fair Labor Standards Act (FLSA) guarantees a minimum wage on the federal level and limits to forty the number of hours an employee can work per week without additional compensation. The original Act, established in 1938, exempted any employee “employed in a bona fide executive, administrative, or professional capacity” from the minimum wage and overtime pay protections. The most significant change with the final rule impacts these exempt employees – increasing the salary threshold by more than 100%, from $23,660 to $47,476 per year.
Thinking about salary in a vacuum is pointless for purposes of FLSA compliance. The FLSA’s “White Collar” exemption categories (executive, administrative and professional) each have salary tests and a duties test, all of which must be met for a position to be exempt from overtime pay. So in addition to receiving a salary at or above the new threshold, each exempted employee must all exercise the job duties of those categories and be paid on a salaried basis.
- Salary Basis Test: The employee must be paid a predetermined and fixed salary, not an hourly wage that is subject to reductions because of variations in the quality or quantity of work performed.
- Salary Level Test: The amount of salary paid must meet minimum specified amounts.
- Duties Test: The employee’s job duties must primarily involve managerial, administrative or professional skills defined by the FLSA.
The first two tests are relatively easy – take a look at your payroll reports. Anyone being paid an hourly rate or a salary less than $47,476 per year is not exempt as of December 1. These employees must be paid overtime for any hours worked over 40 hours in a workweek (state overtime rules may vary). Now is a good time to start the conversation with employees, as anyone who was treated as exempt but will now become nonexempt may have to adapt to new behaviors, and some states have specific time reporting requirements for nonexempt employees. The DOL final rule also permits some nondiscretionary pay as part of the salary to meet the new standard.
The more complex question is whether the position meets the duties test. Even if the employer increases the rate of pay above the $47,476 salary threshold, a position must still perform the duties to qualify as exempt. There have been no changes to the duties test as part of the final rule, and it remains a qualitative assessment by the employer, and its application will likely be under scrutiny by the DOL. Employers should be wary of the increased awareness of the general public and potential litigation costs for class action lawsuits.
There are countless resources to assist employers with the duties test, including the DOL’s website (www.dol.gov), employment attorneys, and HR Consulting groups like Marcum’s Managed HR Services team. But employers need to make haste, as all signs point to the implementation of the final rule on December 1, 2016. Time is of the essence, and compliance is critical to avoid costly penalties and fines. But it’s not all bad news: the final rule is an opportunity for employers to evaluate how work is being performed, and to be more creative or imaginative in assigning those duties., employment attorneys, and HR Consulting groups like Marcum’s Managed HR Services team. But employers need to make haste, as all signs point to the implementation of the final rule on December 1, 2016. Time is of the essence, and compliance is critical to avoid costly penalties and fines. But it’s not all bad news: the final rule is an opportunity for employers to evaluate how work is being performed, and to be more creative or imaginative in assigning those duties.