As of December 1, 2016, the number of employees eligible for overtime will dramatically increase due to an update to the Federal Labor Standards Act (FLSA). Previously under the FLSA, employees who made over $23,600 per year and met certain other requirements were exempt from mandatory overtime compensation. Under the revised regulations, the threshold figure will jump to $47,476 per year. This increase is estimated to render an additional 4.2 million workers eligible for mandatory overtime. The stated purposes of the amendments were to: 1) update the salary threshold to match current economic realities and thereby bring the regulations in line with the original intent of the FLSA; and 2) to make the rules easier for workers and businesses to understand and apply. By increasing the number of workers eligible for overtime pay, employers will have significant decisions to make regarding their employees’ wages, hours, and duties.
The Fair Labor Standards Act is a federal law that governs the minimum wage, overtime pay, recordkeeping, and child labor standards for all full-time, and part-time workers in the private sector and in Federal, State, and local governments. One purpose of the FLSA is to ensure that all workers are fairly compensated. Generally speaking, the Act requires employees be paid at least the federal minimum wage for all hours worked, up to 40, in a given week. Any hours above 40 worked in a given week must be compensated as overtime pay at no less than one and one-half times the employee’s regular rate of pay.
While the rules apply to most employees, there are workers who are exempted from the FLSA’s protections. To be exempt, the employee’s specific job duties and salary must meet all the requirements of the regulations.
Currently, with few exceptions, employees who are paid a salary of at least $23,600 per year ($455 per week) and whose jobs can be described as executive, administrative, or professional are exempt from overtime pay – this is referred to as the white-collar exemption. Likewise, employees who are paid more than $100,000 per year and who regularly perform an executive, administrative, or professional duty (“highly compensated employees”) are exempt from the overtime requirement even where they might not otherwise meet all the specific requirements under a particular classification.
Job titles do not determine whether a job position will be exempt, rather, an examination must be made of the actual duties of an employee to determine if her position may be considered executive, administrative or professional under the law. Employers are advised to consult with their attorney to fully assess whether or not its employees’ duties fall under the exemptions.Generally speaking, the White Collar exemption recognizes that employees who reach a certain level or compensation do not need the same wage protections as lower-wage workers and seeks to avoid putting a substantial burden on employers. However, the salary threshold has been eroded by inflation and increases in costs of living through the years, and employees are not being compensated proportionately to the rising market. Therefore, advocates claim that the current overtime exemption threshold needs to be adjusted upward to update the law to fit its original purpose of ensuring adequate pay for workers.
With the need to increase the salary threshold to keep up with economic realities, the overtime rules are being amended. The revised regulations are expected to extend overtime eligibility to an estimated 4.2 million full-time workers and are intended to make the rules more clear for workers and employers. Specifically, as of December 1, 2016, the updated regulations will:
Employers are not required to convert a salaried employee who gets paid less than the salary threshold to an hourly status. Employers can continue to pay the nonexempt employee on a salary basis and pay overtime for all hours worked over 40 in a workweek.
The Department of Labor does not dictate any method of compliance and employers have the discretion to decide how they will comply with the revised regulations. There are numerous options for compliance including:
This information is not intended to provide or be construed as legal advice. Before taking steps to comply with the new overtime regulations, please consult with an attorney to fully assess your unique situation.
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