BREAKING…U.S. District Judge Block’s New Overtime Rules Scheduled to Take Effect December 1, 2016
A federal judge has blocked the implementation of the new Department of Labor overtime rules with just over a week before it was scheduled to take place. This injunction means that the new rule will not go in effect on December 1 as previously planned. Although it is uncertain at this time when and if these rules will go into place it is important as business owners and employees to be aware of the potential impact these new rules could have on you and your business.
New rules related to salaried employees, overtime pay, and comp time where scheduled to go into effect under the Fair Labor Standards Act (FLSA) on December 1, 2016. FLSA covers employers whose annual sales total $500,000 or more or employers who are engaged in interstate commerce. The new rules increase the minimum compensation level required for an employee to be exempt from overtime. These salary thresholds will be automatically updated every three years under the new regulations. Further, the new regulations add requirements related to the percentage of a salaried employees’ pay and the related timing thereof that can be the result of commissions and nondiscretionary bonuses.
An employee classified as “salaried” may still be eligible for overtime compensation. Employees are either “exempt” or “non-exempt” employees. Non-exempt employees are required to be paid overtime at a rate of 1.5 times their regular hourly rate for any hours worked within a work week exceeding 40 hours. The practice of allowing non-exempt employees to take time off later in the year in lieu of overtime pay (comp time) has been eliminated for employees in the private sector. Public sector employers still have the option of offering and allowing comp time.
While NC and most other states have a 40 hour work week rule, some states, have more stringent rules.
In order to qualify for exemption from overtime requirements, there are both duties tests and salary tests which must be met. The exemptions are as follows:
- Executive, administrative, and professional (EAP) exemption
- Highly Compensated Employees (HCE) exemption
- Outside Sales exemption
- Computer Employee’s exemption
To qualify as an EAP, employees must meet certain minimum requirements regarding job duties and salary levels. The minimum standard salary has been increased under the new regulations from $23,660/year ($455/week) to $47,476/year ($913/week). At least 90% of this minimum standard salary cannot include nondiscretionary bonuses, incentive payments, or commissions. Each quarter you must determine whether the employee was exempt or non-exempt for the previous quarter and make corrective payments if necessary.
To qualify as a HCE, employees must have an annual salary of $134,004 (increased from $100,000). Their primary duties include performing office or non-manual work and customarily and regularly perform at least one of the exempt duties or responsibilities of an EAP.
Outside sales employees’ duties are customarily and regularly performed away from employer’s place of business. If an employee meets this duties test there is no salary component to this exemption.
Computer employees’ must earn at least $27.63 per hour to be eligible for the exemption. This exemption applies to computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field and their primary duties have not changed.
There are timekeeping requirements related to nonexempt employees and failure to keep adequate timekeeping records may result in non-compliance and liability exposure. If an employee has been paid based on a 40 hour work-week but in reality has records substantiating overtime worked, whether approved by the employer or not, the employer is at risk for back wages and payroll taxes.
Further, any contracts or agreements executed with employees that are contrary to the FLSA are not enforceable and do not allow the employer to deny an employee overtime pay, to which they are entitled under the law.
The new overtime rules can be complex. If you would like us to assist with analyzing your employees, their roles and pay rates to see if you are in compliance or need to revise compensation packages, please contact our office.
