By Winifred E. Campbell
The Wage and Hour Division of the U.S. Department of Labor has issued an update to the regulations defining who must be paid overtime wages and who is exempt from being paid overtime wages under the Fair Labor Standards Act (FLSA). The Final Rule, as it is known, will become effective on December 1, 2016. Employers need to be familiar with the changes and to decide well in advance of the effective date how to implement the changes.
What is the Final Rule?
Employers must pay overtime wages to employees who work in excess of 40 hours during a workweek at a rate not less than one and one-half their regular rate of pay. However, under the FLSA, certain employees are exempt from the overtime pay requirement. To be exempt, the employee must meet the following requirements:
• Be salaried
• Be paid more than a specified weekly salary level
• Primarily perform bona fide Executive, Administrative, or Professional (EAP) duties.
In addition to EAP employees, certain computer professionals, sales employees, doctors, lawyers, and teachers are also exempt. Highly compensated employees (HCE) who earn a total compensation of $134,004 are exempt as long as their duties fall under EAP.
How has the Final Rule Changed?
The Final Rule updates the minimum salary for the first time since 2004. The minimum salary level will go up from $455 a week ($23,660 a year) to $913 a week ($47,476 a year). Thus, any employee who earns at least $913 a week or more is exempt from the FLSA’s overtime wage requirements. To keep the salary level from lagging from year to year, the Final Rule now includes an automatic update to the salary level every three years, with the first update occurring on January 1, 2020.
New to the Final Rule is a provision that allows employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the standard salary level. To be applicable, the nondiscretionary bonuses and incentive payments must be paid on at least a quarterly basis.
How can Employers Implement the Final Rule?
The U.S. Department of Labor, Wage and Hour Division has made a few suggestions:
• Increase the salary of an employee who meets the duties test to at least the new salary level to retain exempt status—a good option if employees regularly work OT
• Pay an overtime premium of one and a half times the employee’s regular rate of pay for any OT hours worked—a good option if employees rarely work OT
• Reduce or eliminate OT hours
• Reduce the amount of pay allocated to base salary and increase pay to account for OT for hours worked over 40 in the workweek, which will hold total weekly pay constant
To learn more about the Final Rule or if you would like advice implementing the Rule into your business, please contact us at the McHattie Law Firm.