May 18, 2016
New Overtime Rules To Go Into Effect December 1, 2016
The Department of Labor has announced that its update to the Fair Labor Standards Act's overtime rules will become effective December 1, 2016. This will give employers approximately six months to review their policies and determine how the new rules will affect their workplace.
The new overtime rules will significantly change one aspect of the FLSA overtime "exemption" determinations (i.e., determining which employees are "exempt," and therefore do not have to be paid overtime, even when they work more than 40 hours in a workweek - the primary categories of exempt employees are executive, administrative, professional, computer professional and outside sales employees). Remember, in order to properly classify an employee as "exempt," there are two "tests," both of which must be met: (1) the "salary test," which means the employee must be paid on a salary basis, not an hourly basis, and that salary must reach a prescribed level; and (2) the "duties test," which requires an examination of the employee's regular duties to see whether the actual job he or she performs qualifies for an executive, administrative, etc. exemption.
The new overtime rules which will go into effect December 1, 2016 do not change the "duties test." Instead, the major change is to the "salary test," that is, the level of salary which much be paid before the employee can be exempt. Remember, it is not enough that the employee is paid on a salary basis - that salary must reach a prescribed level, or else even a salaried employee will not be exempt and will have to be paid overtime when working more than 40 hours in a workweek.
Effective December 1, 2016, in order to qualify for FLSA exemptions from overtime, an employee must be paid a salary of at least $47,476 per year, or $913 per week. This is a significant increase, more than doubling the current salary requirement, which is $23,660 per year.
This change will mean that more employees will be eligible to receive overtime pay. It will be important for employers to review their salaries for all exempt employees, then determine which salaries can be raised to meet the exemption level, which ones cannot be raised due to budget constraints, and possibly whether cuts in hourly rates are feasible or advisable to minimize the impact of overtime on the budget (bearing in mind the morale problems this may cause). Then, the employer will need to project and calculate the amount of overtime which will need to be added to its budget, once the previously exempt employees will no longer qualify as exempt, and the employer will need to make difficult decisions whether to alter the workforce, hire more workers to cover required hours without overtime, etc.
Employers must remember that mistakes in calculating overtime can have serious, expensive consequences. For each mis-classified employee (and remember, if you have one, then you may have many in that same position or category), the employee or the Department of labor can sue and the employer would have to pay the unpaid overtime for either two or three years, depending upon whether the violation was "willful," plus most likely double that amount as liquidated damages, plus the attorney's fees and expenses of the employee has hired a private attorney to pursue the claim.
So, employers, be fore-warned. This is a serious and substantial change, and you need to prepare for it. If you need legal help with your analysis of these exemption issues, please contact us.