On September 29, 2016, the U.S. House of Representatives voted to delay implementation of the new employee overtime rules. The Fair Labor Standards Act (“FLSA”) guarantees a minimum wage for hours worked during the workweek. The FLSA also requires overtime pay of at least one and a half times the employee’s regular rate of pay for hours worked in excess of 40 hours in a workweek. The FLSA provides a number of exemptions to these requirements. In what is frequently referred to as the “white collar exemption,” employees must meet certain minimum requirements in their job duties. In most instances, such exempt employees must be paid on a salary basis at not less than the amounts specified in the regulations. The original FLSA of 1939 exempted “any employee employed in a bona fide executive, administrative, or professional capacity.” This exemption was based on the belief that these types of workers typically earned salaries and were also entitled to above average fringe benefits, greater job security and had better opportunities for career advancement than employees who were entitled to overtime pay. The FLSA delegates to the Secretary of Labor the authority to define the terms of the exemption.
On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor to update the regulations defining which white collar workers are protected by the FLSA’s employee overtime rules and minimum wage requirements. On May 23, 2016 the Department of Labor published a Final Rule, to become effective December 1, 2016, that modified the salary level of exempt employees. The modification was based on the standard salary level equal to the 40th percentile of full-time salaried employees in the lowest-wage Census Region. This resulted in a salary level of $913 per week, or an annual salary of $47,476. This represented an increase from the last change made to the salary level of an exempt employee pursuant to changes to the FLSA made in 2004, which was $455 per week, or $23,660 annually.
In addition to increasing the salary levels of exempt employees, the Department of Labor included a mechanism whereby the salary and compensation thresholds would automatically be updated every three years. There were other revisions to the regulations, such as allowing employers to count nondiscretionary bonuses, incentives and commissions toward the salary level, as long as the amounts were paid at least on a quarterly basis. The Department of Labor did not revise the “duties test,” which means that an employee who is not in a managerial or professional position, but still earns over the $47,476 annual salary, will be eligible for overtime compensation.
On September 20, 2016, 21 states sued the federal government to block the new employee overtime rules. The suit was filed in The United States District Court, Eastern District of Texas, Sherman Division. On September 28, 2016, the House voted in favor of a bill to delay the new employee overtime rules from taking effect on December 1st. The house voted 246-177 to delay the employee overtime rules from being implemented for six months. President Obama has threatened to veto the bill.
The final resolution of the new employee overtime rules remains to be seen, however, it is clear that employers need to prepare for the potential implementation of the new employee overtime rules. Consultation with your business lawyer and accountant to determine the best course of action for your business would be a prudent course of action at this time.