DOL’s New Regulations Governing Exemptions from the Fair Labor Standards Act’s Overtime-Pay Requirements Make It Harder for Workers to be ExemptPDF
On May 18, 2016, the U.S. Department of Labor issued new regulations governing exemptions from the overtime-pay requirements of the Fair Labor Standards Act. Under the FLSA, an employee who works more than 40 hours in a seven-day workweek is entitled to overtime compensation at the rate of at least one and one-half times his or her regular rate of pay unless the employee is “exempt” from the FLSA’s requirements. The DOL’s new regulations significantly increase the minimum salary threshold for an employee to qualify as exempt from the FLSA’s overtime-pay provisions.
Specifically, before the revisions to the regulations, employees who worked in managerial, administrative, professional or certain other white-collar capacities and who earned salaries of at least $455 per week ($23,660 per year) generally qualified for an exemption from the FLSA’s overtime-pay requirements. The new regulations do not change the tests for why types of work qualify for an exemption, but an employee must now earn a salary of at least $913 per week ($47,476 per year) to be eligible for exemption from receiving overtime pay. These new thresholds are significant increases that may make many currently exempt workers be non-exempt.
Under the new rules, the new salary thresholds also will automatically adjust every three years to maintain the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region. Employers also may count non-discretionary bonuses, incentive payments and commissions (so long as they are paid at least quarterly) as up to 10 percent of an employee’s standard salary for purposes of determining whether the employee is exempt from the FLSA’s overtime pay requirements.
The DOL estimates that an additional 4.2 million American workers will qualify for overtime pay under the revised regulations. The new regulations go into effect on Dec. 1, 2016. Employers will need to ensure that their businesses are in compliance with the new overtime-pay rules before that date. To ensure compliance by Dec. 1, employers immediately should consider taking the following steps:
- Review all positions currently treated as exempt from the overtime-pay requirements and make appropriate changes to the exempt/non-exempt classification of the positions as required by the new rules;
- Evaluate whether to increase annual salaries of certain positions to at least $47,476 to maintain an exempt classification for the positions;
- Ensure that timekeeping policies, procedures and records are in place to cover employees entitled to overtime pay under the revised rules. For example:
- Impacted employees should be properly trained to track their hours worked, including any time spent working from home or on smart devices;
- Supervisors may need additional training to ensure that they are able to manage schedules and timekeeping records for non-exempt employees; and
- To ensure that employers are able to budget adequately for employee overtime, timekeeping policies should require non-exempt employees to seek prior approval from a manager before working overtime; and
- Businesses should adopt clear communication plans to explain to impacted employees why they are losing their exempt status.