By: Frank N. Lago, Esq.
The Fair Labor Standards Act (FLSA) guarantees a minimum wage for all hours worked during the workweek and overtime pay of 1.5 times the employee’s regular rate of pay for hours worked over 40 in a workweek. The DOL has revised the rules that apply to executive, administrative, professional, and computer employees, generally known as “white-collar” workers. These new rules do not apply to employees who are exempt from over-time pay under Section 7(i) of the FLSA. Those employees typically earn more than 50% of their pay from commissions. To determine if an employee is exempt from having to be paid over-time, the employer must apply two test, the threshold test and the duties test.
The Threshold Test. If the white-collar employee earns less than $913 a week, which is $47,476 a year, the employee is entitled to overtime pay for hours worked over 40, regardless of their job duties and responsibilities. If they make more than this amount, they will qualify for overtime only if they meet the standard duties test, discussed below. This is an increase from the previous amount established in 2004 of $455 per week. The threshold will be adjusted every three years, and adjusted to the salary level of the 40th percentile of weekly earnings of full time salaried workers in the lowest-wage census region according to the BLS. White-collar workers who earn less than the $913 per week will be eligible for overtime.
When calculating the salary of an individual, nondiscretionary bonuses and incentive payments, including commissions, can satisfy up to 10% of the standard weekly salary, but the remaining 90% needs to be paid on a regular basis, provided the bonuses are paid at least quarterly. Additionally, if at the end of a quarter, the employee’s salary is less than the $913 per week, the employer will have one week to make a catch-up payment to bring that employee to the threshold limit, so long as the shortfall is only 10% of the salary level.
Here is the example from the final rule. “In January, February, and March, Employee A must receive $821.70 per week in salary (90 percent of $913), and the remaining $91.30 in nondiscretionary bonuses and incentive payments (including commissions) must be $131 paid at least quarterly. If at the end of the quarter the employee has not received the equivalent of $91.30 per week in such bonuses, the employer has one additional pay period to pay the employee a lump sum (no greater than 10 percent of the salary level) to raise the employee’s earnings for the quarter equal to the standard salary level.”
The Duties Test. If the employees “primary duty” is as an “executive,” “administrative,” or “professional” employee, they are exempt from earning overtime pay. An executive is someone: whose primary duty in management of the business; who customarily and regularly directs work; and who has the authority to hire or fire other employees or advise on their status.
An “Administrative” employees is an employee: whose primary duty is the performance of office or non-manual work directly related to the management or general business operations; and whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. “Matters of significance” refers to the level of importance or consequence of the work performed.
A “professional employee” is an employee: whose primary duty is the performance of work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Highly Compensated Employees. If the employee earns more than $134,000, regardless of duties, they are exempt from overtime pay.
We can help. The attorneys at Walk Law Firm, PA is experienced in assisting its clients with FLSA audits, overtime, timekeeping, and pay practices and policies. We understand how you have to comply with the legal requirements while growing and advancing your business. Please feel free to call one of our attorneys at (813) 999-0199, or contact us via our website at www.WalkLawFirm.com Please note the above example is a simple scenario that does not involve bonuses, salary deductions, or any other factor that could affect how the effective hourly rate, overtime rate, and overtime pay are calculated. While FLSA appears simple, there are a myriad of rules involving its applications and possible misapplications by businesses.