New Rules Dramatically Change Who May Be Entitled to Overtime

05.19.16

The Department of Labor (DOL) has finally issued long-expected changes to the regulations defining who is entitled to overtime pay under the Fair Labor Standards Act (FLSA). These changes will impact millions of employers. According to the DOL, 7.4 million employers could be affected by the changes, with 4.2 million employees becoming immediately eligible for overtime and another 8.9 million indirectly affected.

Here are the basics:

  • The FLSA requires "non-exempt" employees be paid 1 1/2 times their regular rate of pay for all hours worked over 40 in a work week. Employees covered by the FLSA are presumed eligible for overtime unless they fit into one of the specific exemptions. The most popular exemptions to overtime under the FLSA are the so-called "white collar" exemptions: administrative, executive and professional. To be exempt, employees must (1) be paid on a salary basis; (2) be paid a minimum salary set in the regulations; and (3) their primary job duties must satisfy certain "duties tests" set forth in DOL regulations.
  • The changes in the rules impact the second requirement - the minimum salary that must be paid to employees to avoid paying overtime. Under the old regulations, the minimum was $455 per week or $23,660 per year. The new regulations more than double that amount to $47, 476 per year. Employees making less than $ 47,476 will suddenly become eligible for overtime pay, regardless of their duties. These employees will go from being exempt to non-exempt, which means they will need to be paid on an hourly basis and will need to track their work hours.
  • The regulations also change the minimum salary required for "highly compensated" employees who have a less stringent duties test to be exempt from overtime. Previously, those employees had to make at least $100,000 per year. The new regulations increase that minimum to $134,004.
  • Finally, the minimum salary rates will automatically increase every three years, with the next increase in 2020. Then the minimum salary for white collar exemptions will increase to an estimated $51,168 and the highly compensated amount to an estimated $147,524.

The new regulations go into effect on December 1, 2016, giving employers a mere six months to respond and make changes to their wage and hour practices to comply with the law.

Comment: What do these changes mean to your organization? First it means that employees making less than $47,476 need to be reclassified from "exempt" to "non-exempt." Secondly, these employees will now need to track all hours worked and be paid for all hours worked.

These changes will most likely mean an increase in complaints and litigation. Already wage and hour lawsuits are on the rise (up 450 percent since 2000) and represent the largest category of class action filings. The last time the rules were changed, in 2004, the number of wage and hour lawsuits increased significantly. All indications are that we will see another jump in filings this time around.

One silver lining to the changes is that they provide an opportunity for employers to reclassify workers who have long been misclassified. Employers can fix some long standing problems.

Weber Gallagher will be offering the same program on two separate dates to explain all you need to know about these key changes. Click here for the invitation. 

Media Contacts

Chelsea R. Seidel 
267.765.4137
cseidel@wglaw.com

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