The New Requirements for Overtime Exemptions are Out

by Laura Pokrzywa

After months of speculation and more than 270,000 comments from businesses, the Department of Labor (DOL) announced today the new minimum salary level requirements for the executive, administrative, and professional exemptions allowed under the Fair Labor Standard Act (FLSA). The new salary level more than doubles the current minimum salary level of $455/week ($23,660/year).

Effective December 1, 2016, the new salary level will be $913/week ($47,476/year for a full-year worker).

The FLSA requires that employers pay employees a minimum wage (currently $7.25) and overtime (time and a half on more than 40 hours worked in a workweek) UNLESS the employee is exempt from these requirements. Employees that must be paid overtime are called “non-exempt” and are paid on an hourly basis. Employees who are not owed overtime pay are called “exempt” employees. Before we go further, it is important to note that many employers think of their employees as “hourly” or “salaried”, rather than “non-exempt” or “exempt”. They assume that, as long as they are paying an employee a salary, they do not need to worry about overtime pay. But it isn’t that simple under the law. Just because you pay someone a salary does not mean that the employee is exempt from overtime requirements.

Employers may consider an employee exempt from overtime pay if that employee is paid at the minimum salary level or above AND if that employee’s role passes the “duties test” (i.e., the tasks they perform must included specific duties and responsibilities as spelled out in the FLSA). For example, under the new rule, an employee may fall under the executive exemption if they are paid at least $913/week ($47,476/year) AND all of the following job duties requirements are satisfied:

  • The employee’s primary duty must be managing the enterprise in which the employee is employed, or managing a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent;
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

In order to be classified as exempt, employees in professional and administrative roles must also perform specific duties spelled out in the FLSA. Though most exempt employees will fall under the three most common exemptions: executive, administrative, or professional; there are are other exemptions to consider. One of those additional exemptions is for “highly compensated employees”. Employees paid a minimum salary of $134,004 (up from $100,000) are exempt if they pass a less-stringent duties test.

If all this talk of exempt and non-exempt employees is new to you, the DOL offers a 14-page guide full of basic information to help small businesses comply with the FLSA. Small Entity Compliance Guide to the Fair Labor Standards Act’s ‘White Collar’ Exemptions is available for free downloading.

It is still possible that this rule may be delayed depending on the outcome of measures pending in the House and Senate. But, for now, the best thing employers can do is get ready! Along with its announcement of this new rule, the DOL has published a free 8-page guide called Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule. And they didn’t forget non-profits. If you run a non-profit and would like more information, you can download their Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act. The DOL is also offering free webinars to help employers understand the new rules. You can get more information about those by visiting the DOL’s Wage and Hour Division page.

As always, if you have questions about the FLSA, exempt vs. non-exempt, or these new rules, we are ready to help! Send us an email at hrhelpline@eastcoastrm.com.

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