Stand at Attention Employers: The All New FLSA White Collar Overtime Exemptions | DCR Workforce Blog

Stand at Attention Employers: The All New FLSA White Collar Overtime Exemptions

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.

Previous regulations

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:

  • The employee was compensated at a rate of at least $455 per week ($23,660 annually)
  • The employee’s primary work and specific job responsibilities were exempted, as being supervisory in nature.

New regulations

Salary thresholds have changed, but the primary duty clause wasn’t affected. Here’s what to expect under the new regulations:

  • The minimum salary threshold is nearly doubled at $913 per week (or $47,476 annually) – and is tied to the 40th percentile of weekly earnings of full-time salaried workers in whichever region of the country which has the lowest wages (currently it is the Southeast).
  • The new regulations allow up to 10% of the salary threshold for all non-highly compensated employees to be attributable to non-discretionary bonuses, incentive pay or commissions, as long as such payments are made on a quarterly or more frequent basis.
  • A highly compensated employee is also exempt from overtime. This rule increases the salary threshold from $100,000 to $134,004 per year. The salary threshold for the highly-compensated will increase every three years to the 90th percentile of earnings of full-time salaried workers nationally, as per the DOL.
  • The DOL did not ultimately make any changes to the “primary duty” test and the duties test for highly-compensated employees requires them to perform office or non-manual work, and retains the clause about including at least one of the duties of an exempt white collar employee.

Possible effects of the new rules

Irrespective of their size, all employers will be impacted by these new rules. They may need to undertake the following operational changes:

  • Employers need to determine which of the employees are exempt before providing them with flexible schedules, and not arranging to track their daily hours.
  • Employers need to assess their time and record-keeping methods, wage and hour policies, employee classifications and ensure that they are compliant with these regulations.
  • The rule may call for a reclassification of employees and a review of collective bargaining agreements.
  • Supervisory approvals must be extended to all non-exempt employees when they work less than the stipulated number of hours and also when they work overtime hours.
  • Employers may consider changing the work schedules of workers; raising salaries above $913 per week; altering the primary duties of some employees or reviewing the employee classifications and update employees of any changes.
  • If employing contingent workers, the organization will need to ensure that the staffing firm employs the same classification system and pay rates when the contingent worker is essentially doing the same job as a permanent employee.

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?

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.

2 responses to “Stand at Attention Employers: The All New FLSA White Collar Overtime Exemptions”

  1. kripa says:

    Two questions:

    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)?

    Thank you

    • 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.

Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.