When the DOL Proposes Changes to the Overtime Rules, Employers Must Take Note

WHEN THE DOL PROPOSES CHANGES TO THE OVERTIME RULES, EMPLOYERS MUST TAKE NOTE.  In 2014, 8,086 lawsuits were filed in federal courts for violations of pay practices under the Fair Labor Standards Act (“FLSA”).  Of these, 1,837 lawsuits, or approximately of 23% of all FLSA lawsuits in the United States, were filed in Florida.  In March 2011, a Florida-based company paid more than $754,000 in overtime back wages following a finding by U.S. Department of Labor (“DOL”) that its temporary supervisors were misclassified as exempt employeesSimply, improper time and pay practices are costly mistakes.

Earlier this month, the DOL proposed changes to the rules governing the white-collar exemptions (executive, professional, administrative, highly compensated, and computer related employees) to the overtime requirements under the FLSA.  The DOL estimates that the proposed rule changes will extend overtime protections to an additional 5 million employees.  Any business with at least 1 employee, should:

  • Understand the existing rules and proposed changes
  • Assess the impact of how the proposed changes will affect employee classification, timekeeping and pay practices, and payroll
  • Consider submitting comments to the DOL concerning how the proposed changes will affect your business. You may do so at: regulations.gov  on or before September 4, 2015.

THE EXISTING RULES AND THE PROPOSED CHANGES

Currently, under the FLSA, all employees covered by the Act, unless they specifically exempted, must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Employees who fall within the white collar exemptions are not entitled to receive overtime pay — regardless of the number of hours they work within a workweek.  To fall within one of these exemptions, employees must (1) be paid on a salary basis, (2) be paid at least a fixed minimum salary per week of at least $455.00 per week ($23,660.00), and (3) meet certain requirements as to their primary job duties that are specific to each exemption.

For more detailed discussions on the FLSA, 
please see the videos on the FLSA previously made by our new Of Counsel 
Attorney Kerry Raleigh at:
·         Introduction to FLSA
·         Employee Overtime:  Common Mistakes & Perceptions
·         Employee Overtime: Employers Need to Get It Right

THE PROPOSED CHANGES:

The DOL proposes three key changes to:

  • Set the standard salary requirement for the white collar exemptions from $455.00 per week to the 40th percentile of weekly earnings of full-time salaried workers, which is currently $921.00* per week ($47,892.00* annually);
  • Increase the total annual compensation requirement for the highly compensated employee exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, which is currently $122,148.00* annually; and
  • Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

 ASSESSING THE IMPACT ON YOUR BUSINESS

The proposed changes do NOT require that you pay all your managers, assistant managers, or other employees a minimum salary of $47,982*[1].  You can treat those employees as non-exempt and pay them overtime for any hours worked in excess of 40 hours in one work week.  And, IF the Fluctuating Work Week factors are met, the employee’s overtime pay would be the half-time rate, not time and one-half time, for hours worked in excess of 40 hours. We capitalized and bolded “IF” because it is very important to properly assess and meet the requirements for the Fluctuating Work Week. Paying an employee a salary does not automatically fall within the Fluctuating Work Week.

The below example illustrates the affect of the proposed changes and highlights the importance of applying the correct calculation of overtime pay.  For this example, assume that you employ a person who is currently paid a bona fide salary of $500.00 per week and who satisfies all the job duty requirements for the executive exemption, and who works 60 hours per week. Also, assume the employee works these 60 hours for 50 weeks out of the year, and takes vacation for 2 weeks out of the year.

Current RulesProposed Rules: Proposed Rules
ExemptNon-Exempt – Must Pay OvertimeExempt
IF Fluctuating Work Week Does Not ApplyIF Fluctuating Work Week Applies
Employee is not entitled to overtime pay.Overtime Rate of Pay: $13.01/hrOvertime Rate of Pay: $4.34/hr Employee must be given salary increase:
($8.67 x 1.5 = $13.01)($8.67/2 = $4.34)
Total Yearly Pay:Total Yearly Pay:Total Yearly Pay:Total Yearly Pay:
$26000$39010$30340$47,982*
($500 x 52 weeks)(Calculated Below)(Calculated Below)
Effective Hourly Rate:Effective Hourly Rate:Effective Hourly Rate:Effective Hourly Rate:
$8.67/hr$13.00/hr$10.11/hr$15.99/hr
($26,000/50 weeks/60 hours)($39,010/50 weeks/60 hours)($30,340/50 weeks/ 60 hours)($47,982/50 weeks/60 hours)
Employee's Weekly PayEmployee's Weekly Pay
$500 salary, plus$500 salary, plus
$260.20 OT ($13.01 x 20)$86.80 OT ($4.34 x 20)
$760.20 Total Weekly Pay$586.80 Total Weekly Pay
Employee’s Yearly Pay:Employee’s Yearly Pay:
$26,000 salary, plus$26,000 salary, plus
$13,010 OT pay for 50 weeks$4,340 OT pay for 50 weeks
$39,010 Total Yearly Pay $30,340 Total Yearly 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.comPlease 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.

* Because the proposed changes seek to establish an automatic mechanism for automatically updating the salary and compensation levels going forward, these salary amounts may change on a periodic basis.