This Past Week’s Changes To The Over-Time Rules Under FLSA Printer friendly format
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Business hand holding clock with a dollar sign in the middle.This past week, President Obama and Secretary Perez announced the Department of Labor’s final rule updating the overtime regulations under the Fair Labor Standards Act (FLSA). The final rules have been expected for some time, but what exactly do they mean for employers? Read on…

Background:

Towards the end of the Great Depression, the government passed the federal FLSA. The statute created a number of initiatives designed to get more people into the workforce. For example the FLSA was the first law to restrict child labor. After all, if you make it illegal for employers to work kids in coal mines for pennies, they’ll have to hire their daddies – and for a higher wage.

The FLSA also introduced the idea of over-time – that employees working more than 40 hours during the workweek must be paid at time and half for those extra hours. Over-time was intended to create an incentive for employers to hire more people rather than working the same worker longer hours. Over the years, over-time has also come to represent a benefit for lower-wage workers who work longer hours.

Of course, if an employee qualifies as a salaried worker, the employer does not have to track the workers’ time, pay over-time, etc. A salaried worker is often called “exempt,” meaning that he or she is exempt from the employer’s over-time requirements. (Which, in turn, makes hourly workers called “non-exempt.”) The employer doesn’t get to decide who is salaried and who is exempt; rather, the government has specific rules that dictate whom is in what category. Generally speaking, salaried workers are those whose contribution to the employer cannot easily be measured in time increments, who have certain executive, administrative and professional duties, and who earn higher amounts of money. 

The biggest change announced this past week modifies the dollar amount that makes an employee presumed “salaried” and, thus, usually “exempt” from the employer’s requirements for over-time. So, what exactly changed?

Key provisions:

The new regulation raises the point at which workers become salaried and presumed to be no longer entitled to over-time. Previously, only workers who made $23,660 or less were presumed eligible for over-time. Now, any employee who earns as much as $47,476 will be presumed “non-exempt” and eligible for overtime. Why this new amount? It updates to today’s dollars the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the U.S. South.

There are other changes. The FLSA has long had an exemption for highly-paid employees, and the new rule raises that exemption requirement to $134,004/year. That means that if an employer pays an employee an annual salary of $134,004 or more, that worker is automatically exempt from the over-time requirements without any additional inquiry.

Last, the new rule establishes a mechanism for automatically adjusting for cost of living every three years.

These new rules will go into effect December 1, 2016

Impact:

The impact of the new rule is unclear – and hotly debated. The government is quick to boast that 4.2 million workers will gain over-time pay protection within the first year of implementation. Over half of these will be women, says the Department of Labor, and more than half also have a four-year college degree.

Advocates of the business community contend the new rule will cause employers to limit employees’ hours and duties as a way to curtail over-time. They also point out the likelihood that it will affect employees’ flexibility at work. For example, the hours of salaried employees do not need to be tracked by the employer, allowing salaried workers to, say, take off time in the afternoon in exchange for answering email at night, etc. As new hourly workers, however, employers will be asked to monitor those hours in a more careful way.

Who is right about the effect? Probably both camps, actually, though the important ways employees and employers really feel the change will only become clear over time.