Wild Rumpus.

By now, everyone is aware that on May 18, 2016, the Department of Labor (DOL) issued its final rule updating the Fair Labor Standards Act (FLSA) overtime regulations. (Defining and Delimiting the Exemptions or Executive, Administrative, Professional, Outside Sales and Computer Employees.) Since then, there have been dozens of helpful articles, analyses, explanations, and in-person and electronic trainings to explain the rule. Panic is rampant, as employers attempt to understand the change to the regulations. But stay calm – it’s not that complicated.

Although the final rule, to be published in the federal register on May 23, is over 160 pages long, the changes made to the existing regulations are not numerous. Much of the method used to determine who is entitled to overtime under the FLSA will stay the same – although the numbers used in those calculations have changed substantially.

What stays the same?

  • Under the FLSA, hourly employees generally are entitled to overtime pay in the amount of time-and-one-half for hours worked over 40 in a week. That basic concept has not changed.
  • There currently exist certain exemptions from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. These are referred to as the ‘‘white collar’’ exemptions, as set forth in 29 CFR part 541 (“Part 541”), and have not changed
  • To be considered exempt under Part 541, employees still must meet certain minimum requirements related to their primary job duties and, generally must be paid on a salary basis at not less than minimum amounts specified in the regulations. (This typically is referred to as the “salary basis” test.) That mechanism remains the same.
  • The definitions of and parameters for those Part 541 exemptions have not changed – even though there was some reference to possible changes when the revisions first were announced months ago.
  • Part 541 also includes a “highly compensated” exemption which states that an employee automatically is considered to be exempt if that individual earns a certain amount of annual compensation, and customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee. That test remains unchanged.
  • Employers still are responsible for tracking the hours of non-exempt employees.

What has changed?

  • The Final Rule updated the salary level upon which the basic Part 541 exemptions are based, increasing it from the previous level of $455 per week (the equivalent of $23,660 per year) to a new level of $913 per week (the equivalent of $47,476 per year). That means that an individual employee earning an annual salary less than $47,476 automatically is entitled to overtime for hours worked over 40 per week.
  • The DOL has decided to permit nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard weekly salary level threshold, provided these forms of compensation are paid at least quarterly.
  • The “highly compensated” annual salary – over which the individual is considered to be exempt, so long as he or she performs one or more duties of an exempt employee – was set at $100,000 in 2004, and now has been raised to $134,004.
  • The Final rule establishes a mechanism for automatically updating the salary and compensation levels every three years to “ensure that they continue to provide useful and effective tests for exemption.”
  • Because many more individuals may be classified as non-exempt, an employer’s responsibility for tracking the work hours of their employees is likely to expand – so when in doubt, keep track.
  • The DOL has set an effective date of December 1, 2016 for employers to implement the Final Rule, explaining that this will provide sufficient time – over 180 days – to make any changes that are necessary to comply with the final regulations.

With this information as a starting point, employers can begin the real work of determining how to classify – or re-classify – their employees to assure that each individual entitled to overtime pay under the FLSA’s two-step salary-level-and-duties test is properly designated and paid.

And now, “Let the wild rumpus start. . . .”

 

Illustration and quote from Maurice Sendak’s Where the Wild Things Are, beloved children’s book first published in 1963 by Harper & Row.  Mr. Sendak did his own illustrations.