More of your employees will be eligible for overtime in 2016
By Ruth Binger, Principal, Danna McKitrick, P.C.
The United States Department of Labor has proposed a new rule that will decrease the ability of companies to classify their employees as exempt from premium overtime wages under the Fair Labor Standards Act (“FLSA”).
The regulation change is, in part, a response by the Obama administration to an increase in the number of part-time workers and misclassification of workers as independent contractors.
FLSA was part of the 1938 New Deal legislation that was passed in response to the Great Depression. Its purpose was two-fold: 1) to provide a minimum subsistence wage, and 2) to avoid oppressive working hours by creating an obligation to pay overtime premium pay of 1½ the employees’ regular rate for hours worked over 40 hours in a regular work week.
A classification was created for white collar workers that were considered to not need the statutory protection of premium overtime pay or a minimum wage and whose skills, pay and position offered them sufficient bargaining power to protect themselves. Thus, these white collar workers were considered “exempt” from the statutory protections.
The exemption currently applies to employees engaged in bona fide executive, administrative, or professional capacities that meet a prescribed “duties test” (including any employee employed in the capacity of academic administrative, personnel, or teacher in elementary of secondary schools or in the capacity of an outside sales employee).
An additional exemption is provided for computer systems analysts, computer programmers, software engineers and other similarly skilled computer engineers that meet a similar prescribed duty test. Terms are not defined in the FLSA, and the DOL is charged with the responsibility of delineating and defining these white collar exemptions from “time to time”.
Misconceptions abound in this area. Job titles are insufficient to establish exempt status. Similarly, merely paying an employee on a salaried basis does not establish exempt status.
The DOL Proposed Rule focused on three changes:
The Proposed Rule would double the current Salary Level to $50,440, as projected for 2016;
It increases from $100,000 to $133,148 the pay requirement for the highly-compensated employee exemption to apply; and,
The Proposed Rules will also establish a mechanism which will cause the standard salary and compensation levels to be updated annually, either by maintaining the levels at a fixed percentile of earnings or by updating the amounts based on changes in the CPI-U.
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