What Do The New FLSA Overtime Rules Mean For Me?

There has been a lot of hoopla and panic about the new FLSA rules.  In fact, few employers seem to understand how these new rules will affect them and their employees.  Here is a quick tutorial:

What are the new rules?

The new rules raise the minimum salary required to claim an exemption to the FLSA minimum wage and overtime rules under the professional, administrative and executive exemptions.  The new rules requires employees to earn a salary of at least $913 per week ($47,476 a year), up from $455 per week ($23,660 a year), to be exempt. The new salary level is equivalent to the 40th percentile of full-time salaried workers in the lowest wage census region nationally.  In addition, the new rules raise the threshold for the highly compensated employee exemption to $134,004, which is the 90th percentile of full-time salaried workers nationally, up from $100,000.

These new salary thresholds will be adjusted automatically every 3 years to maintain them at the same percentile levels.

When do the new rules go into effect?   

The new rules become effective on December 1, 2016. After that time, salaried employees who do not meet the new thresholds must be paid overtime for any hours worked in excess of 40 per week.

How will this affect me?

Simply put, employers must evaluate their workforce and determine which employees are affected by these new rules.  Exempt employees who earn above the new thresholds will not experience any change. It is important however, to make sure that these employees' duties actually qualify under one of the exemption tests.  If not, regardless of salary,  the employees are as non-exempt.  Those employees whose salary fall between the old and new thresholds will be most affected.  Employers may continue to pay these employees by salary, but most also keep track of and pay overtime for any hours worked in excess of 40 per week.  

Although the short-term effects seem to be increasing the take-home wages of some employees and the cost for employers, a lot remains to be seen regarding the longer-term effects of the new rules. While some newly non-exempt employees will have their overall pay increased by overtime, others may lose their jobs or effectively become more restricted in their work environment by their employers' efforts to contain costs and avoid overtime (employees with less flexibility may lose out on some projects).  Others, near the threshold, may receive an immediate small increase in salary so as not to bump them down to non-exempt status.  Much remains to be seen and there is no shortage of reasonable opinions and projections.    

How should I get ready?

• Start early! This is a great time to audit all employee FLSA designations to truly understand which employees work in positions that could be classified as exempt (depending on salary).  You may want to include in this analysis how much overtime may be expected in each position so as to more accurately understand potential labor costs.
• Take a new look at your budgets. If you rely heavily on the group that is being re-classified, figure out your expected increase in labor costs and how you will cover it.  In some cases, that may mean cuts in salaries or personnel, but if it you get out in front of it, your are assured much less heartache. Remember, you cannot lower pay or change your overtime policy retroactively.  
• Figure out your time keeping and overtime policies now, so you can make sure everyone understands what to expect and how to comply before the deadline. There is nothing wrong with policies that have employees clear overtime with a supervisor BEFORE working it or limiting total overtime eligibility.  The key is making sure ALL overtime worked is paid at the premium level.  That does not mean employees need to choose when or how much overtime they work.

• Do not punish employees for becoming "more expensive."  Unless absolutely necessary, do not roll back flexible work arrangements that may be working.  Instead, figure out how to make them work under the new system. For example, a person working one day from home and making it work, or with a schedule that is shifted, should be able to continue to do so.

• Do not make employees feel less valuable or accomplished because they are now "non-exempt."  Despite it being a worker protection, many employees view their FLSA  exemption as a social status.  Make sure they understand that this is a change to a technical legal distinction, which in no way correlates to their value as employees.  Do not make employees feel like they are "punching-the-clock" if it can be avoided.
• Be careful.  Bad reporting procedures, or even employee non-compliance with reporting procedures, do not exempt an employer from paying overtime.  Make it your business to know (and employees' responsibility to let you know).  
• If you need help with any of the above, make sure to reach out to employment counsel.  One phone call or email could save a lot of heartache (and money!)

FLSA Dissonance: Exempt or Nonexempt?

Over the last few weeks, FLSA issues have surfaced in places I would least expect.  Otherwise savvy clients, it turns out, sometimes incorrectly characterize and pay part-time and other hourly workers as exempt, or have been paying overtime to salaried workers in exempt positions.  It seems that even when good intentions are there, complicated FLSA requirements can confuse employers. But, it is not as hard to sort it all out as it may seem.

The Fair Labor Standards Act, 29 U.S.C. 201, et seq., requires employers to pay workers a minimum hourly wage and to pay at least one and one-half times the regular hourly wages for all hours worked in excess of 40 in a single week.  The FLSA also establishes certain exemptions to the overtime payment requirements.  The most well known exemptions are those that apply to workers employed in bona fide executive, administrative, or professional capacities; outside sales workers; and well-compensated computer systems analysts, computer programmers or software engineers.  (Some lesser-known FLSA exemptions include certain railway workers, agricultural employees, domestic employees and reporters for small newspapers.)  

To qualify for an exemption, employees generally must meet certain Department of Labor tests regarding their job duties and be paid on a salary basis of not less than $455 per week.  Job titles do not determine exempt status.  The DoL provides online Fact Sheets to help employers understand whether employees qualify for the executive, administrative, professional, computer or outside sales exemptions.  The administration of FLSA requirements does not end with properly classifying employees.  Once an employee is considered exempt from FLSA overtime requirements, the employer must be careful not to make certain deductions from pay, even when the employee does not work the usual assigned hours, or the claimed exemption may be jeopardized.  

As if FLSA rules were not complex enough, state wage and hour rules can further complicate matters. Many states set their minimum wage above the federal level.  In addition, state wage laws may require that employers pay overtime for work done in excess of daily rather than weekly limits (such as in Alaska, California, Nevada and Colorado) or provide narrower, different or fewer exemptions to overtime pay requirements (such as in Hawaii and Pennsylvania).  No matter where you are located, it is important to know and understand both the FLSA and the applicable state wage and hour laws. As the penalties for misclassification or non-payment of overtime wages under federal or state law can be severe, it is important to keep an eye on these issues, especially as employees move from part-time to full-time employment, or when they move from short-term contractor positions to regular employees.  

For help determining proper FLSA and state law classifications or to determine if employees have been misclassified, contact an employment attorney immediately.  Please feel free to contact me through the Contact page of this website or directly at shari@kleinerlegal.com.