The most significant change in years to the Fair Labor Standards Act will require that an employee paid $913 a week (or $47,476 per year) or more be exempt from overtime pay. Currently, employers are exempt from paying overtime for employees who make more than $455 each week. All positions that don’t meet the new FLSA threshold requirements will be overtime eligible, required to track their time and be paid for all hours worked, as well as being paid time and a half for all hours worked over 40 in a workweek.
In raising the threshold salary, the new rule is expected to decrease the number of exempt workers and to increase the number of employees entitled to overtime.
But this doesn’t mean that a current salary will have to be raised by an employer.
For example, a branch manager performs the duties under the “administrative exemption” and is paid a salary of $42,000 a year. The manager regularly works from 9 a.m. to 5 p.m., Monday through Friday. Because of the change in the salary level, the manager will no longer be an exempt employee. Nevertheless, the new rule has no impact on the manager’s pay, because the manager does not work more than 40 hours in a given week. The office can continue to pay the manager a fixed salary of $42,000 a year.
However, the hours worked by this branch manager will have to be tracked and recorded by any method utilized by the employer. Importantly, as of Dec. 1, 2016, overtime-eligible employees may be paid a salary and do not need to be paid on an hourly basis. That is, salaried workers may be eligible for overtime. Moreover, job titles never determine exempt status under the FLSA.
Nuts and Bolts of the FLSA’s Exemptions
The level of an employee’s salary is just one of one of three tests for determining whether employees employed as executive, administrative or professional employees are exempt from the FLSA’s minimum wage and overtime requirements. These exemptions are sometimes referred to collectively as the “white-collar” exemptions.
In order for a white-collar exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations.
- First, an employee must be paid on a salary basis which is not subject to reduction based on quality or quantity of work.
- Second, an employer will have to pay not less than the new threshold amount.
- Third, the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative or professional employees (the “standard duties test”).
There are some existing exemptions to which the salary threshold does not apply, and employees can continue to qualify as exempt regardless of salary. These include teachers, lawyers, doctors and outside sales professionals.
The second change the new overtime rule makes is to increase the threshold salary for the highly compensated employees’ exemption from $100,000 annually to $134,004 annually. The proposed regulations had used $122,148, so this is a significant increase from early proposals issued by the U.S. Department of Labor.
How to Be FLSA Compliant on Dec. 1
What are some options for responding to changes to the salary level? They will include:
- Raise salaries to maintain exemption.
- Pay current salaries, with overtime after 40 hours.
- Reorganize workloads, adjust schedules or spread out work hours.
Many organizations may already have systems in place for tracking nonexempt employees’ hours. These existing procedures can be used for any newly overtime-protected employees impacted by the overtime rule.
Mark your calendar for Dec. 1 as the FLSA embarks on a new legal path. And, while that day is fresh in your mind, remember to celebrate National Eat a Red Apple Day, which also falls on the first day of the 12th month.