The U.S. Department of Labor issued a Notice of Proposed Rulemaking that, if finalized, will require employers to pay overtime to more employees. Under existing law, employees with a salary below $455 per week ($23,660 annual) must be paid overtime if they work more than 40 hours per week. The Proposed Notice increases the salary level to $679 per week ($35,308 annual).
The Fair Labor Standards Act (FLSA) governs federal overtime provisions. It establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for employees in the private sector and in Federal, State, and local governments.
The FLSA applies to most U.S. employers, including employers with $500,000 in gross sales and employers who engage in interstate commerce, produce goods for interstate commerce, or sell, handle or work on goods or materials that have been moved in or produced for interstate commerce. It also applies to the following entities, regardless of gross sales: hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies.
All employees of an employer covered by the FLSA must receive overtime pay for any hours worked over 40 in a workweek at a rate not less than time and a half of their regular rate of pay. An employee’s workweek must be fixed and a recurring period of 7 consecutive 24-hour periods. Employees may be “exempt” from the FLSA overtime and minimum wage rules if they meet certain limited requirements. The exemptions are very narrowly defined, and include:
- Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and certain skilled computer professionals (as defined in the Department of Labor's regulations)
- Employees of certain seasonal amusement or recreational establishments
- Employees of certain small newspapers and switchboard operators of small telephone companies
- Seamen employed on foreign vessels
- Employees engaged in fishing operations
- Employees engaged in newspaper delivery
- Farm workers employed on small farms (i.e., those that used less than 500 "man‑days" of farm labor in any calendar quarter of the preceding calendar year)
- Casual babysitters and persons employed as companions to the elderly or infirm
Many employers rely on the “white collar” exemption to the FLSA to avoid paying overtime. The FLSA's white collar exemptions exclude executive, administrative, and professional employees. Certain computer professionals and outside sales employees are also included in the exemption and excluded from the overtime requirements.
Paying someone a salary (instead of hourly) is not sufficient to claim the white collar exemption from the FLSA. Instead, each job position must be analyzed independently to make certain the job duties meet the requirements set forth by the Department of Labor. An important aspect of the analysis is to confirm that the employee’s job duties involve the exercise of discretion and independent judgment. Certain salary thresholds also apply.
The new Proposed Rulemaking modifies the use of the white collar exemption to the overtime rules by making the following changes.
- Raises the salary threshold from $23,660 to $35,308 a year ($455 to $679 a week).
- Raises the “highly compensated employee” threshold from $100,000 to $147,414.
- Commits to review the salary amount in the future.
No changes were made to the “duties” test for determining if an employee can be considered for an exemption, and no changes were made to overtime protections for police officers, fire fighters, paramedics, nurses, certain laborers and certain non-management employees in maintenance and construction occupations.
All employers will need to keep track of the Notice and see if changes are required if and when the rule is finalized.
