On May 18, 2016, the U.S. Department of Labor (” DOL”) released its last rule upgrading and revising the overtime exemptions for executive, administrative, and expert workers under the Fair Labor Standards Act (” FLSA”), 29 U.S.C. 201, et seq. (the “Final Rule”). If reclassified, companies have to choose whether to reduce their hours worked to avoid paying overtime, whether to reallocate hours worked among existing workers, and how reclassified staff members must record their time worked, among a host of other considerations. Best intellectual property lawyers can be found here.
The Final Rule has another significant feature: automatic increases to the limit income level every three years. This is the first time in its 78 years of implementing the FLSA that the DOL has asserted that it has the authority to mandate automated wage level boosts. However, there is substantial doubt about whether this element of the Final Rule adhere to Section 13 of the FLSA.
Executive, Administrative, and Professional Exemptions Under the Final Rule
The FLSA usually needs employers to pay workers at least the base pay, and overtime if workers work more than 40 hours in a week. 29 U.S.C. 206-07. The statute, however, excuses specific workers such as those used in administrative, executive, or expert positions from these protections. See 29 U.S.C. 213(a)(1); 29 C.F.R. 541.
To qualify for the executive, management, or professional exemption, an employee has to please 3 criteria:
The worker needs to be paid on a wage basis not subject to reduction based on quality or quantity of work (” Salary Basis Test”);
The worker’s wage should satisfy a minimum level (” Salary Level Test”); and.
The worker’s main task responsibilities need to include the kind of work related to executive, administrative, or expert staff members (” Duties Tests”).
The Final Rule typically keeps these 3 requirements but sets the Salary Level Test at the 40th percentile of incomes of full-time employed employees in the lowest-wage Census Region, currently the South, which is $913 weekly or $47,476 every year. Hence, the Final Rule more than doubles the Salary Level Test from its current level of $455 weekly.
Furthermore, the Final Rule increases the minimum salary to qualify for the “extremely compensated” staff member exemption from $100,000 every year to the 90th percentile of full-time employed workers nationally, which is currently $134,004. To qualify for this exemption, in addition to satisfying the salary requirement, an employee has to routinely carry out a minimum of among the main responsibilities of a professional, management, or executive employee, and not carry out manual work.
The Final Rule also sets automated increases in the threshold wage levels on January 1 every 3 years, beginning January 1, 2020.
In enacting the Final Rule, the DOL noted its efforts to reduce burdens on employers. The DOL did not change any of the Duties Tests, thus leaving in effect the now-familiar tasks requirements of the professional, management, and executive exemptions. In addition, the Final Rule allows companies to count nondiscretionary bonus offers and commissions made by staff members as approximately 10 percent of the employee’s annual
income, if payments are made a minimum of quarterly. The following chart summarizes exemption requirements under the Final Rule:
(Click here to see table).
To ensure compliance with the Final Rule by December 1, 2016, companies should think about immediately taking the following steps:
Currently, employees who make a salary of at least $455 per week, or $23,660, are exempt as long as they also perform job duties that satisfy one of the Standard Duties Tests. Under the brand-new DOL regulations, presently exempt employees will no longer be exempt from the FLSA’s requirements unless they earn an income of at least $913 per week, or $47,476 per year.
Consider how business operations will be influenced by staff member reclassification or wage adjustments, and design a strategy best fit to meet the requirements of the company. The DOL’s new regulations do not need employers to reclassify presently exempt staff members. Employers may provide pay raises to bring workers’ salaries up to the brand-new salary-level threshold, decrease or get rid of overtime hours for individuals who do not satisfy the brand-new Salary Level Test, pay overtime to employed staff members who no longer certify for an exemption, or some mix of these choices.
Consider impacts to staff member relations, timekeeping and payroll systems, and the requirement for training to maintain compliance with the FLSA’s recordkeeping arrangements. If a company decides to reclassify some staff members as non-exempt, it must likewise think about the staff member relations implications. This includes the impact on spirits of workers who consider themselves supervisors and specialists, now have to record their time worked. Companies likewise must consider the impact the new classification may have on payroll, timekeeping, and other internal recordkeeping operations. Newly non-exempt employees may be not familiar with tracking and reporting the hours they work and might require training to guarantee all records are maintained properly.
Think about how potential changes interact with other FLSA requirements. Employers need to also be aware that any changes to its business design or worker classification may implicate other provisions of the FLSA. For example, employers ought to advise reclassified employees to tape perpetuity worked, and carry out policies prohibiting off-the-clock work if required. If employers decide to reclassify staff members to non-exempt and overtime eligible, companies ought to think about whether added payments, such as vacation and stock rewards, should be consisted of in the regular rate of pay for the functions of calculating overtime.