The wait is finally over! The Department of Labor (DOL) has released the much awaited final rule extending overtime protections to an additional 4.2 million Americans who were not eligible for overtime protections until now. The new rule, under the Fair Labor Standards Act of 1938, becomes effective starting December 1, 2016. This revision defines and delimits the exemptions for executive, administrative, professional, outside sales and computer employees under the Fair Labor Standards Act and provides a necessary fillip to many a worker’s wallet, ensuring fair compensation for their hard work.
Retreating slightly from the DOL’s initial proposals in June 2015, the final rule significantly revises the prerequisites for treating an employee as exempt under the FLSA’s “highly-compensated” exemption and specifies the salary and compensation levels needed for executive, administrative and professional workers to be exempt. The compensation thresholds set by this rule will be automatically updated every three years, beginning on January 1, 2020.
Under the FLSA, employers must pay non-exempt employees an hourly rate of at least one-and-a-half times their regular rate of pay for time worked in excess of 40 hours in a workweek. Employers need to stand at attention and ensure that they’re following the new guidelines to a T or risk facing the consequences of non-compliance.
Employees are generally exempted from overtime when they meet these three criteria: (1) they are paid on a “salary basis”; (2) they satisfy the applicable “duties” test; and (3) they are paid the prescribed minimum salary level. The regulations exempted an employee from overtime as a white collar worker if:
Salary thresholds have changed, but the primary duty clause wasn’t affected. Here’s what to expect under the new regulations:
Irrespective of their size, all employers will be impacted by these new rules. They may need to undertake the following operational changes:
Interestingly, nothing in the FLSA requires that the employer not change the old pay as the base; however, employers would lose big time on the attrition, re-hiring and training costs if the employee decides to walk away if the employer makes too many changes to their pay rate so as to avoid paying out more due to the FLSA guidelines.
Has the DOL met its primary objectives – to ensure that white collar workers are paid fair pay for a fair day’s work, to modernize and simplify the regulations and to ensure that the FLSA’s intended protections are fully implemented – with this update?
1. Does Overtime final rule only affect salaried workers, and will have no impact on hourly workers?
2. A worker whose salary is more than $134,004, is automatically exempt regardless of job duties (test)?
1.Does overtime final rule only affect salaried workers, and will have no impact on hourly workers?
Unless specifically exempted, employees who work more than 40 hours per workweek are eligible for overtime. Under the new rules, exempted employees are those:
i. who are salaried (i.e. they’re paid a predetermined and fixed salary which is not linked to either the quality or quantity of the work performed by them);
ii.who are paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker); and
iii.who primarily perform executive, administrative or professional duties;
iv.additionally, certain employees are not subject to either the salary basis or salary level tests (such as doctors, teachers and lawyers).
2.Is a worker whose salary is more than $134,004 automatically exempt regardless of job duties (test)?
The regulations exempt highly compensated employees (HCE) who earn above a higher total annual compensation level. As you said, this amount is specified as $134,004 under the latest Overtime Rule. To be exempt, they must satisfy a minimal duties test too – reference point iii. above.
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