The Department of Labor’s (DOL) May 18, 2016 new overtime exemption requirements under the Fair Labor Standards Act (FLSA) affect a staggering 4.2 million workers—19% of 22,514,000 previously exempt from overtime—including 134,000 in Ohio, 87,000 in Indiana, and 55,000 in Kentucky. Of the 4.2 million affected, 56% are women. The most noteworthy changes—which take effect on December 1, 2016—are as follows:
- The minimum salary requirement is raised from $23,660 to $47,476 a year (or from $455 to $913/week);
- The salary threshold also automatically updates every three years based on wage growth.
- Bonuses and incentive payments may count up to 10 percent towards the new salary level; and
- The “highly compensated employee” exemption salary threshold is raised from $100,000 to $134,004 above which only a minimal showing is needed to demonstrate ineligibility for overtime.
Practically, these changes are expected to raise wages by $12 billion over the next 10 years.
The FLSA requires employers to pay covered, non-exempt employees overtime—at one-and-a half times their “regular rate”—for all hours worked in a week over 40. Employers must pay employees overtime unless employers satisfy their burden of showing the employees are “exempt” from these requirements. To be exempt from overtime: (1) employees typically must be paid a predetermined and fixed salary; (2) the salary must satisfy the minimum specific amount, which was $23,660/year before the recent changes; and (3) generally the job must primarily involve executive, administrative, professional, or computer-related duties. In other words, simply, receiving a salary does not make an employee ineligible for overtime. The exemptions are based on the DOL’s belief that those who work more than 40 hours per week should typically get paid more for that extra time, and also that workers who satisfy the exemptions usually earn more and enjoy other privileges setting them apart from those entitled to overtime.
The DOL is the federal administrative agency charged with enforcing the FLSA and defining the contours of the exemptions. Employees can also pursue FLSA claims through private actions on behalf of themselves or on behalf of “similarly-situated” employees through a collective action. Due to the potential size of a collective action and the expansive remedies available, they can carry high exposure; they can be expensive to litigate; and they have recently been filed at record levels. The overtime rules were comprehensively updated only once since the 1970s and the $23,660 threshold is below the poverty line for a family of four. In March 2014, President Obama directed the DOL to modernize its outdated overtime rules. After considering over 270,000 comments from interested stakeholders, the DOL issued its Final Rule on May 18, 2016.
In response to these changes, affected employers have four options: (1) raise salaries above $47,476; (2) pay time-and-a-half for overtime; (3) limit hours to 40 per week; or (4) implement some combination of the first three options. Raising salaries for employees at or above the salary level to maintain exempt status may work for employees with salaries close to the new level and who regularly work overtime. Paying overtime when necessary for hours worked over 40—in addition to the employee’s current salary—may be a good fit for employees who typically work 40 hours of less. Employers can also ensure that workload distribution and staffing levels are managed appropriately, which may require hiring additional workers.
Although every workplace and every wage-and-hour issue are different, employers affected by the DOL’s Final Rule should promptly: (1) re-examine their overtime and exemption policies and practices; (2) implement the appropriate changes; and (3) inform employees of the changes. Do not hesitate to contact a member of our Employment Practices Group if you have questions about compliance with the DOL’s Final Rule, general advice on FLSA compliance, or any other employment-related issue.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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