Earlier this year, the Department of Labor (DOL) issued final rules that made changes to the overtime regulations under the Fair Labor Standards Act (FLSA) effective December 1, 2016. The DOL estimates more than 4 million workers who were formerly exempt from overtime will now be legally entitled to overtime pay (at a rate of 1.5 times the regular rate of pay) if they work more than 40 hours in a work week.
Prior to December 1, 2016, employees that meet certain duties tests and are paid a salary of greater than $455 per week ($23,660 per year) could be classified as exempt from overtime pay. As of December 1, 2016, the salary threshold is raised to $913 per week ($47,476 per year) and will automatically adjust every three years. The new regulations did not make any substantive changes to duties tests. It is important to remember that employees must meet both the duties test and the salary test to be considered exempt.
The salary test can be complicated when bonuses or commissions make up a significant portion of compensation, but it is usually easy for an employer to determine if an employee meets the salary threshold of $913 per week.
The duties tests, however, can be much more challenging to interpret because some of the criteria for exempt job duties are subject to discretion and judgement. In general, there are three types of white collar job duties that can be classified as exempt from overtime (if the minimum salary threshold is also met): executive, administrative and professional. There are other industry specific job duties that are always exempt or never exempt from overtime.
While most business enterprises are subject to the provisions of the FLSA, some (but not all) may be exempt if business revenues are below $500,000. Even if the employer is not subject to FLSA under the enterprise coverage rules, some employees could still be subject under individual coverage rules. The enterprise and individual coverage rules can be challenging to interpret, especially for small businesses and not-for-profit entities.
If overtime hours are worked, non-exempt employees must be paid for those hours even if the overtime hours were not formally approved. The burden of proof lies with the employer. Therefore, it is important for the employer to support the amount of hours worked and overtime paid. This is the only defense in the event of a DOL examination or a claim made by a current or former employee for unpaid overtime wages.
Here are a few steps you should consider in response to the new overtime rules:
- Notify the owners, executives, or senior management of the changes in the overtime rules.
- Review all positions and job descriptions to ensure the title and description are consistent with the duties being performed.
- Evaluate whether each position meets the executive, administrative, or professional exemption.
- Evaluate the compensation amounts and structure for each position. Exempt employees must be paid more than $913 per week to remain exempt.
- Consider other exemptions that may apply to the enterprise as a whole or each employee.
- Consider the hours required to perform each job, including work outside of normal business hours (emails, after hours phone calls, travel requirements, etc.)
- Determine how changes will be made to compensation amounts and structure in light of the new rules.
- Consider other changes that may now be required such as time-tracking systems, work hours, overtime approval process, and the impact on positions not directly affected by the new rules.
- Communicate the changes with management and employees to ensure they understand the changes, especially if their classification as exempt or non-exempt has changed.
If you have questions, please feel free to contact our office.