For now, the overtime rule will not take effect as planned on December 1st, but it could still be implemented later down the road. Employers may continue to follow the existing overtime regulations until a decision is reached. A preliminary injunction isn’t permanent, as it simply preserves the existing overtime rule – which was last updated in 2004 – until the court has a chance to review the merits of the case objecting to the revisions to the regulation.
But, I’m getting ahead of myself for now….let’s talk a look at what the FLSA (Fair Labor Standards Act) has done to protect the integrity of ‘overtime’ since 2004 and then we can look at what the DOL proposed for going forward.
Most employees covered by the FLSA must be paid at least one and one-half times their regular rate of pay for any hours they work beyond 40 in a workweek. An employer who requires or ‘permits’ (optimal word here) an employee to work overtime is generally required to pay the employee premium pay for such overtime work. The FLSA establishes minimum wage, overtime pay, record keeping and youth employment standards affecting employees in the private sector and in Federal, State and local governments. Covered non-exempt workers are entitled to a minimum wage of not less than $7.25 per hour. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.
Generally, this affects employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more. In addition, employees of certain businesses are covered by the FLSA regardless of the amount of gross volume of sales or business done. These businesses include: hospitals, businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies.
The FLSA’s white collar exemptions exclude certain executive, administrative and professional employees from federal minimum wage and overtime requirements. Certain computer professionals and outside sales employees are excluded from these requirements. Currently, to qualify for exemption, a white collar employee generally must:
***Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the ‘salary basis test’);
***Be paid at least a specific salary threshold, which is $455 per week (the equivalent of $23, 660 annually for a full-year employee) in existing regulations (the ‘salary level test’) and;
***Primarily perform executive, administrative or professional duties, as provided in the Department’s regulations (the ‘duties test’).
The FLSA provides minimum standards, and does not preempt a state from establishing more protective standards (please note all of the states and municipalities that have a ‘living’ minimum wage). If a state establishes a more protective standard then the provisions of the FLSA, the higher standard applies in that state.
Under the current regulations, a white collar employee must be paid at least $455 per week (equivalent to $23,600 annually for a full-year employee) to qualify as an exempt executive, administrative or professional employee. An employee may qualify as an exempt computer professional if he or she is paid at least $455 per week or at least $27.63 an hour, if paying on an hourly basis. There Is no salary level test required to qualify as an exempt outside sales employee. Certain professionals including doctors, lawyers and teachers are not subject to the salary level test. Finally, the current regulations also contain a relaxed duties test for certain employees who receive total annual compensation of $100,000 or more and are paid at least $455 per week. This specific regulation has been in effect since August 23, 2004.
To help build real, lasting economic security for more hardworking Americans, President Obama directed the Secretary of Labor to update the FLSA’s overtime pay protections and to simplify the overtime rules for employers and workers alike. By way of this rulemaking, the Department seeks to update the salary level test to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of overtime-eligible employees, thus making the white collar exemptions easier for employers and workers to understand.
On May 18, 2016, President Obama and Labor Secretary Perez announced the publication of the DOL’s final rule updating the overtime regulations, which automatically extends overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.
In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. Consistent with the President’s goal of ensuring workers are paid a fair day’s pay for a hard day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2014 and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.
Key Provisions of the Final Rule
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically the Final Rule:
***Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, current the South ($913.00/week; $47,476 annually for a full-year worker);
***Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
***Establishes a mechanism for automatically updating the salary and compensation levels every three (3) years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The effective date of the Final Rule was to be December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) were to be effective on that date. Future automatic updates to those thresholds were to occur every three (3) years beginning on January 1, 2020.
The proposed rule will clarify the overtime requirements for approximately 11 million workers who earn below the proposed salary threshold and their employers because their entitlement to overtime pay can be determined solely on the basis of the bright line salary threshold. This group includes almost 5 million white collar workers who will become newly entitled to overtime protection because of the increase in the salary threshold, and approximately 6 million white collar employees who are currently entitled to overtime who will have their eligibility clarified because it will be determined solely by application of the salary threshold.
In the first year, the Department estimates that 4.6 million workers exempt under the current regulations who earn at least the current weekly salary level of $455 but less than the proposed salary level of $921 would, without some intervening action by their employers, become newly entitled to overtime protection under the FLSA. Similarly, an estimated 36,000 currently exempt workers who earn at least $100,000 but less than $122,148 and who meet the minimal HCE duties test but not the standard duties test may also become eligible for minimum wage and overtime. Additionally, the Department estimates that 6.0 million salaried white collar workers who are currently entitled to overtime due to their job duties, and who earn at least $455 per week but less than the proposed salary level, would have their overtime protection strengthened because their exemption status would be clear based on the salary test alone without the need to examine their duties. This would reduce the number of overtime eligible workers potentially subject to misclassification as exempt by their employers.
As most of my readers know, I am an employee advocate....having worked for a number of employers who have been 'self-centric', including the owners of Medisys, LLC, who's mission in life was/is to see how many/often employees they could/can demean by stealing their trust fund taxes or engaging in outright 'wage theft'….which, violations of the above notated FLSA's rules are considered. However, my former employers use to feel that 'stealing' from employees was a God given right....and maybe it was, since one of the owners is a Methodist minister in a main line Philadelphia church....and I'm sure the members there have no idea what corrupt behavior he exhibited while working at/for the company...Large tax liens can be a hindrance in many instances....but with some individuals, the fear doesn't affect them....
However, that is water under/over the bridge and once governments are made aware of illegal behavior, the probability that the behavior will continue is dampened....in most cases. The last I read/heard is that the DOL is appealing the injunction so at this point in time, it is a wait and see situation. For employers, I understand that the costs could be prohibitive but the way to get around it completely is to prohibit any type of overtime in your facility and insure that overtime is not performed....a bit more complicated than one may think.....for even if an employers states 'no overtime' and knows that work can not be completed if overtime is not part of the work plan, if an employee does work the overtime, the employer has a 'legal' obligation to pay it. For employees, I understand that it would be great to be earning more money for that extra work but if/until the Final Rule is accepted and not challenged, there will be no additional categories/salary levels earning overtime....the key for the time being is to make sure that you are not working for a 'Medisys' and that all overtime worked, is paid.
If you have any questions or need further information or clarification, please email Rosanne Dimarco Bennett at email@example.com or call me at 484-947-7063. I will gladly help anyone. whether employer or employee understand and comply with the FLSA law.