Significant changes to the Fair Labor Standards Act (FLSA) are coming that will dramatically increase the number of salaried employees entitled to overtime pay.
Despite efforts by the U.S. House of Representatives to push back the start date by six months, employers should act now before the new provisions take effect on December 1, 2016.
The Law Today – Exempt vs. Non-Exempt Employees
Currently, for a position to be considered “exempt” from the overtime pay requirement, it must pass three tests:
- The “salary basis test” requires that the employee earn a fixed salary in each workweek, which cannot be dependent on hours worked or some other performance metric.
- The “duties test” limits the types of work “exempt” employees can do.
- The “salary level test” dictates that employees making at least $455 per week ($23,660 annually for a full-year worker) are exempt from FLSA overtime laws.
There are several categories of duties, including those for executives, administrative professionals, outside sales representatives, and computer professionals, each with their own guidelines.
Because the salary basis test and the duties test are unaffected by the new rules, positions that did not qualify for an exemption before the change will remain disqualified.
New Rules Make an Estimated 4.2 Million Works Eligible for Overtime Pay
The new FLSA rules change only the “salary level test” and nearly double the earnings required to be considered an exempt employee. On December 1st, the salary threshold jumps from $455 per week to $913 per week ($47,476 annually). As a result of this change, employees who are earning less than $913 per week will no longer be exempt from FLSA and are now entitled to additional pay for overtime hours worked. And, beginning in 2020, this salary level will increase automatically every three years according to a pre-determined calculation.
Preparing Your Workplace for the Changes
Employers can utilize several options to comply with the new rules. For salaried employees making less than the new threshold, employers may:
- Maintain their current pay structure, but find ways to eliminate the need for overtime work;
- Maintain their current pay structure, and begin paying overtime wages to salaried employees who earn less than $913 per week;
- Increase the salaries of employees who satisfy the other two tests to meet the new $913 weekly threshold; or
- Utilize some combination of the above.
President Obama has promised to veto House Bill 6094, which would have delayed implementation of the new laws by six months. As such, with less than 45 days left, employers should not count on any additional time to update their salary practices and bring themselves into compliance with the new rules.
The penalties for non-compliance can be substantial. Employers who are found in violation of the act are liable not only for back-wages, but also liquidated damages, civil penalties and, in egregious cases, criminal liability. Businesses that have not been tracking the hours of salaried employees making less than the new $913 per week threshold should begin doing so immediately to ensure compliance. Should a business become the subject of a Department of Labor audit, a complete and accurate time log archive is a good first line of defense.
If you feel your business may be affected by the upcoming rule changes and would like to discuss the changes further, please contact the attorneys in Zausmer Employment & Labor practice and we can assist you in determining the best course of action.