Do You Know the Overtime Pay Rules Under the New Fair Labor Standards Act?

In 2014, President Obama mandated that the Secretary of Labor update the overtime regulations so that they reflected the intent of the Fair Labor Standards Act (FLSA) and to simplify and modernize the rules. The Department of Labor has issued some final rulings that will require compliance from most employers no later than December 1, 2016.

When determining an employee’s eligibility for overtime pay, in general, there are two categories of employees. The first category are employees which are classified as “nonexempt”. These employees are protected under the FLSA and are eligible to receive mandatory overtime pay at “time-and-a-half ” their normal rate of pay, for hours worked in excess of 40 hours during their a consistently applied 7 day work week. These rules apply to hourly and some salary employees but they did not apply to the second category of employees classified as “exempt”. An exempt employee typically has job duties that meet the definition of an Executive, Administrative or a Professional employee. In the past, typically an exempt employee was not eligible for mandated overtime compensation if they worked in excess of 40 hours during their consistently applied 7 day work week.

While the new rules do not make any changes to the duties test for Executive, Administrative and Professional employees, there is a significant increase in the minimum amounts that must be paid to “exempt” employees if they work more than 40 hours per work week. In order for an employee to be exempt from overtime compensation rules, they must meet the duties test and the minimum salary threshold.

Under the updated regulations, an exempt employee must earn a minimum salary threshold of $913 per week ($47,476 per year) in order to still be exempt from mandated overtime compensation. Up to 10% of timely paid nondiscretionary bonuses, incentive pay and commissions paid to exempt employees can be considered in the calculation of the employee’s salary threshold. These payments must be paid to the employee on at least a quarterly basis.

Also updated is the compensation level above which an employee will most likely be ineligible for mandated overtime compensation. Highly compensated employees (HCE) will be defined as any employee earning at least $134,004 per year.

There is a mandated automatic update of the salary threshold every three years, beginning January 1, 2020. Updated rates will be posted 150 days in advance of each automatic increase, beginning August 1, 2019. The changes broadly described above may represent a financial and operational challenge for employers. Changes may be required to how employees are paid and scheduled in order to document compliance with the changing overtime compensation rules.

Disclaimer: this information is provided for general information purposes only. This information does not constitute legal, tax or any other form of professional advice. Before making any decisions or taking any actions, you should consult with your appropriate advisor who has been made aware of the facts and pertinent information regarding your situation.