Published in NH Business Review (May 27, 2016)
Companies Must Comply by December 1, 2016
On Dec. 1, 2016, about 2½ years after President Obama signed a presidential memorandum directing the U.S. Department of Labor to update regulations defining which white-collar workers are protected by the Fair Labor Standards Act’s minimum wage and overtime standards, the final rule will take effect. That gives businesses six months to assess the changes and become compliant.
Coverage of the Fair Labor Standards Act is broad: Most businesses are covered, including non-profit organizations, higher education institutions and state and local governments.
It is important to note that nonprofit organizations, while not exempt from the FLSA, might not be covered.
For example, employees of nonprofits that perform only charitable activities or nonprofits that make less than $500,000 from business purpose revenues are only entitled to overtime if the employees engage in interstate commerce themselves in the course of their job duties.
As for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities, the DOL said it will implement a time-limited non-enforcement policy from Dec. 1, 2016, to March 17, 2019, for those residential home and facilities with 15 or fewer beds.
In order for a FLSA-covered business to be exempt from paying overtime, the regulations require that each of three tests be met:
1. The employee must be paid a fixed salary.
2. The amount of the salary must meet a minimum amount.
3. The employee’s actual job duties must primarily involve executive, administrative or professional duties that are separately and distinctly defined by the FLSA.
The final rule impacts the second part of the test – minimum salary amount. The minimum salary for covered exemptions will increase to $913 per week ($47,476 per year). The new minimum salary represents the 40th percentile of earnings for all full-time salaried workers throughout the United States.
In addition, the minimum salary that an employee must earn to meet the “highly compensated” exemption will increase from $100,000 to $134,004 per year, which is tied to the 90th salary percentile.
Finally, the salary threshold will be automatically updated every three years, beginning Jan. 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers, estimated to be $51,168 in 2020.
The DOL will post new salary levels 150 days in advance of their effect date, beginning Aug. 1, 2019.
The final rule does not make any changes to the third part of the test – the “duties test,” which determines whether a salaried worker earning more than the salary threshold meets one of the FLSA exemptions.
How would be affected by the changes to the regulation?
Consider a company, Acme Marketing Company, which employs five individuals, including a full-time employee, Mabel, whose job responsibilities include bookkeeping and human resources.
Mabel often works 50 hours a week, sometimes from home via remote access. Mabel receives a salary of $800 per week, or $41,600 per year, and is considered exempt from overtime under the FLSA’s administrative exemption. Under the final rule, Mabel would no longer be considered exempt because she does not earn the requisite $913 per week.
Acme has several options:
1. Increase Mabel’s salary so that she meets the minimum salary test.
2. Continue to pay her current salary, along with overtime.
3. Continue to pay her current salary, but prohibit overtime (although it must be paid if she works any time over 40 hours in a week) and hire a part-time employee to work 10 hours a week at a lower hourly rate.
4. Evaluate and realign her workload.
It’s important that businesses take the opportunity now by conducting wage audits, reviewing wages scales and handbook policies, and identifying employees whose status may change to non-exempt in order to prepare for any financial impact from the new overtime rule.
Beth Deragon, an attorney in the Employment Law Practice and Litigation Group at the law firm of McLane Middleton, can be reached at [email protected] or at (603) 628-1490.