On May 18, 2016, the Department of Labor announced new rules which will govern compensation for every employer in the country which is covered by the federal Fair Labor Standards Act. With a few exceptions, this includes any employer which has gross revenue of $500,000 or more.
The new rules govern who is eligible for overtime.
The general structure of the law has been in place since 1938 when the Fair Labor Standards Act was initially passed. The 1938 Act provides that employers are entitled to be paid time and a half for any hours worked over 40 hours in a workweek. However, the Act provides that some employees are “exempt” from the overtime requirements.
Generally employees who were paid at a higher salary level and who performed professional, administrative or executive functions were exempt and were not entitled to overtime pay. The general premise was that exempt employees did not work “on the clock” and were required to put in as many hours as necessary to perform their tasks in exchange for a base salary which did not change regardless of how many hours were worked in a particular week.
The new regulations do not change the definitions of who is an executive, administrative or professional employee.
However the new regulations do change the salary level that must be met before an employee can be considered exempt. Under the new rules, any employee who is paid less than $47,476 (or $913 per week) is automatically considered to be non-exempt. Therefore, under the new rules any employee making less than $47,476 per year is entitled to overtime if they work more than 40 hours per week regardless of the nature of their duties.
Another important part of the new regulations is that the salary level will be adjusted every three years to keep pace with wage inflation.
The new regulations take effect on December 1, 2016.
Every employer needs to carefully consider the impact of the new regulations. Employers should check the salary level of their employees and determine whether any employees who are presently exempt are being paid less than $47,476.
If you do find that some employees are exempt now but do not meet the new $47,476 required level, you have a number of options:
• Limit the employee’s hours to 40 or fewer each week. In this case, no overtime would be due and the organization could continue to pay the employee his or her current salary.
• Hire an additional worker to perform the extra hours.
• Pay the employee the overtime premium for hours beyond 40 in a week.
• Pay the new salary level to maintain the exemption.
The penalty for not paying overtime to an employee who is entitled to it is quite extreme. The employee in that circumstance would be entitled to back pay, an equal amount as punitive damages, as well as attorneys’ fees.
The attorneys at Coolidge Wall are available to assist you if you have any questions about the new regulations or you want guidance as to how the regulations can be properly implemented in your workforce.
C. Mark Kingseed