The Obama Administration, through the Department of Labor’s Wage and Hour Division, announced new federal regulations under the Fair Labor Standards Act (“FSLA”) that will dramatically change the way in which payments for overtime will be calculated. As an employer, you are probably asking – what do I need to know about these new regulations and—more importantly — what do I need to do to in order to comply?
While the new regulations are complex and should be carefully reviewed, there are seven main points that all employers should know and understand right now.
- What is “overtime”?
While there are certain exemptions, employers covered by the FLSA must pay their non-exempt employees for hours worked in excess of 40 hours in a single workweek at one and one-half times their regular rates of pay.
- How do the current regulations and new regulations compare?
This new rule updates the regulations for determining whether white collar salaried employees are exempt from receiving overtime pay. Below is a comparison of the current regulations and new regulations relating to entitlement of white collar salaried employees to overtime:
|Current Regulations||New Regulations|
|Salary Level||$433 weekly||$913 weekly|
|Highly Compensated Employee Total Annual Compensation Level||$100,000 annually||$134,004 annually|
|Bonuses||No provision to count nondiscretionary bonuses and commissions toward the standard salary level||Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly|
|Standard Duties Test for Exemption||Executive, Administrative, and Professional duties||No changes to the standard duties test|
- Why is the Department of Labor revising its overtime regulations now?
The Obama Administration has stated that the new regulations are intended to update and modernize the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards and has said that it believes that the current salary level for white collar employees (with regard to overtime pay) is “outdated.” The salary level test is designed to help identify salaried workers who are entitled to overtime pay and to help employers understand and apply overtime eligibility rules.
- When are the new federal regulations effective?
The new regulations will take effect on December 1, 2016, instituting the new standard salary level ($913 per week or $47,476 per year) and the Highly Compensated Employee total compensation requirement ($134,004 per year). Future automatic updates to these thresholds will occur every three years, beginning on January 1, 2020.
- To whom do the new federal regulations apply?
The new rules applies to all employers (private employers that meet the minimum threshold of gross revenue, all state and local governments) covered by the FLSA. In addition, employees of certain businesses are automatically covered by the FLSA including hospitals, businesses providing medical or nursing care for residents, schools, and public agencies.
6. How should employers implement the updated salary level requirement established by these new regulations?
Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:
- Increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
- Pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- Reduce or eliminate overtime hours;
- Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
- Use some combination of these responses.
The circumstances of each affected employee will likely impact how employers respond to this new rule. It is best to discuss and review proposed options with legal counsel.
- Who should I call at Lamb McErlane with questions about the new regulations?