The U.S. Department of Labor’s (DOL) long-awaited proposed changes to the regulations associated with the Fair Labor Standards Act (FLSA) were published today in the Federal Register. Among other things, the FLSA governs overtime pay and requires that employees be paid one and one-half times the regular rate of pay for all hours worked over 40 in a single workweek, unless the position they occupy qualifies as exempt from the overtime mandate. The most common exemptions require the position to meet a two-part test: (1) it must be paid on a salary basis and at a rate of at least $455 per week (known as the “salary test”), and (2) it must perform duties that are primarily executive, administrative, professional, outside sales, or computer related, as more specifically spelled out by a myriad of regulations and administrative rulings (known as the “duties test”). The proposed rules would tie the salary test to the 40th percentile of the average weekly earnings of all full-time salaried employees in the nation , to be adjusted accordingly each year. Based on the current forecasted data, that would put the required salary amount for 2016 at more than double that of the current salary test to at least $970 per week, or an annual amount of $50,440.
In addition, the proposed rules also tie the highly compensated employee exemption, which allows for a more abbreviated duties test, to the 90th percentile of weekly earnings of all salaried employees nationally. For 2015, that would increase the salary basis from $100,000 to $122,148.
The DOL indicated it did not propose any specific changes to any of the various duties tests, but acknowledged that it expects to propose some changes and invited additional input.
The proposed rules are subject to a period for public comment, which ends on September 4, 2015. For the full text of the proposed rules and information about how to submit comments, click here.
So, what do employers need to do now?
These rules are not yet finalized, although it is likely they could become final by the end of 2015. Given that, we recommend that employers take a close look at those positions that may be affected by such a change and start evaluating appropriate options now to ensure that you are prepared to comply with these rules. Remember, if a position no longer qualifies as exempt from overtime, it will be important to ensure that:
- the employee is made aware that they will now need to submit the required timesheets, timecards, or punch in/out on a time clock;
- the employer is maintaining a record of actual hours worked; and
- the employee is properly paid for any and all overtime earned.
In addition to scheduling considerations, there are other mechanisms that may be available to both facilitate compliance and avoid unnecessary costs. For example, a written overtime policy can be a useful tool to ensure that non-exempt employees know when approval may be needed and how to obtain it before they work overtime. Although a lack of required approval will not excuse the employer’s obligation to pay overtime, when worked, a properly crafted and appropriately applied policy can provide for better communication, planning, and, ultimately, cost control.
As always, we plan to keep you apprised of developments that might be of interest to you. In the meantime, feel free to contact us if you need advice or guidance on overtime laws, specific exemptions, or payroll reporting obligations.
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