May 19, 2016
Earlier this week, the Obama Administration issued its long-awaited changes to Fair Labor Standards Act (FLSA) overtime regulations. The U.S. Department of Labor estimates that an additional 4.2 million workers will become eligible for overtime pay when the revised regulations go into effect later this year.
FLSA Exemptions and Federal Regulatory Changes
The FLSA generally requires employers to pay employees overtime compensation at the rate of 1.5 times their regular hourly rate of pay for all time worked over 40 hours in a single workweek. However, a number of exemptions to this rule exist. The most common exemptions are the so-called “white collar exemptions.” These exemptions apply to any employees with executive, administrative or professional job duties, as defined by federal law, who also are paid a minimum weekly salary of a predetermined amount.
The minimum salary required for the white collar and other select exemptions has been $455 per week since 2004. The revised regulations raise the minimum salary requirement to $913 per week. In other words, once the new regulations go into effect, even if an employee continues to satisfy the job duty requirements for a white collar exemption, the employee will be eligible for overtime pay unless his annual salary is at least $47,476. Up to 10 percent of the required minimum salary amount may include non-discretionary bonuses and commissions paid on at least a quarterly basis. The minimum salary amount will be adjusted every three years so that it equals the 40th percentile of earnings of full-time workers in the lowest-wage Census Region at that time.
The revisions also modify the highly compensated employee exemption. Federal regulations currently exempt from overtime requirements an employee who annually earns at least $100,000, who is guaranteed compensation of at least $455 per week, whose primary duty is office-based work, and who customarily performs at least one of the duties from the duties list for the white collar exemptions. The new rule will raise the annual required earnings threshold for this exemption from $100,000 to $134,004. This threshold will be increased every three years so that it equals the 90th percentile of full-time salaried workers in the United States at that time.
The revised rules are set to go into effect on December 1, 2016. Because the changes are part of the regulatory process, they can be implemented by the Obama Administration without congressional intervention. However, Congress may block the rule changes if it has sufficient votes to override a probable veto from President Obama. Such a turn of events is unlikely: employers should begin preparing for the changes.
Actions for Employers
The new overtime regulations represent the biggest changes to federal wage and hour laws in more than a decade. Employers should take immediate action to ensure compliance when the new rules take effect in December, 2016.
Employers should review compensation arrangements for all employees currently classified as exempt under the white collar, highly compensated, or other exemptions. Employers will need to decide whether they will raise the salaries of workers who are soon to be below the applicable salary threshold or if they will reclassify these employees as non-exempt and begin paying them an hourly rate (either equivalent to the former salary or modified) with eligibility for overtime compensation for time worked over 40 hours in a single workweek. Employers should provide training to newly-reclassified employees on the process for reporting time worked.
Additional information on the rule revisions and technical guidance from the Department of Labor may be found at here.
If you have any questions or need assistance regarding compliance with FLSA requirements and other employment laws, please contact a member of Hancock Daniel’s Labor & Employment team.
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The information contained in this advisory is for general educational purposes only. It is presented with the understanding that neither the author nor Hancock, Daniel & Johnson, P.C., PC, is offering any legal or other professional services. Since the law in many areas is complex and can change rapidly, this information may not apply to a given factual situation and can become outdated. Individuals desiring legal advice should consult legal counsel for up-to-date and fact-specific advice. Under no circumstances will the author or Hancock, Daniel & Johnson, P.C., PC be liable for any direct, indirect, or consequential damages resulting from the use of this material.
