On May 18, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations. Here are some answers to commonly asked questions.
I already pay all of my employees a salary, so I do not need to worry about this new rule, correct?
That is not necessarily correct. Many employers were unaware that in order for an individual to be exempt from overtime, there are three requirements that must be met:
1. The employee must be paid a salary;
2. The salary must meet the salary level test, which is set in the final rule at $47,476. Many employers ignored this test because the previous level was $23,660; AND
3. The exempt worker must be performing exempt duties.
The new rule changes the second requirement, the salary level, but it has caused many employers to take a second look at the duties test as well.
Why is the new salary level so high? None of my employees are paid that much!
Congress originally passed the Fair Labor Standards Act (FLSA) in 1938 to guard against abuses in our industrialized society, with workers working long hours at minimal pay. The law set minimum wage and overtime rules. It included exemptions for those workers who performed higher level duties, who were paid at a level well above minimum wage. The salary level was set to assure adequate compensation for those truly performing exempt work. The Department of Labor places this threshold at the 40th percentile of earnings of full-time salaried workers in the South, the lowest wage region. The 40th percentile is thought to be a dividing line between nonexempt and exempt workers.
What about part-time employees who occasionally work more than 40 hours in a week? Do I need to pay them overtime?
There is no distinction between part and full-time salary level so part-time workers who make less than the salary level and who work more than 40 hours in one week must be paid overtime.
Do I need to require all of my employees to begin keeping time records?
If after an analysis of the workforce some employees who have been considered exempt are making less than the salary level you will be required to keep track of their hours and pay time and a half for hours worked over 40, even if they are paid a salary. For workers performing exempt duties, and paid more than the salary level, you do not need to track their hours.
What should my employee handbook say about overtime?
If you want to control overtime expenses, your handbook should clearly prohibit unauthorized overtime, require supervisor approval, require accurate recordkeeping, and provide for discipline for those who do not follow the rules.
Will the rule apply to my business?
This rule will apply to all business that operate in interstate commerce and which are subject to the FLSA, which is virtually every business.
Are nonprofits exempt?
There is no exemption or exclusion for nonprofit businesses.
Do we have to comply today?
The rule will go into effect December 1, 2016, absent an act of Congress.
Won’t Congress pass some law nullifying this rule?
That is unclear at this point. Legislation has been introduced, but it is uncertain whether it will pass and become law.
Some insights for employers
If you have not already done so, it is time for every employer to take a hard look at exempt workers. There are several exemptions that could apply, and each one should be analyzed as compared to the work that your employees perform in order to make sure that they are exempt. For workers under the salary level threshold, you can do one of three things: (1) Make them nonexempt and start tracking hours and paying overtime, (2) raise their salary to the salary level threshold, or (3) prohibit overtime work (see above for handbooks).
Bobbi Dominick is an employment law attorney at Gjording Fouser PLLC and she helps employers prevent and resolve employment claims. Please feel free to contact Bobbi at firstname.lastname@example.org or 208.336.9777.