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New Rule Leads to More Employees Being Eligible for Overtime Pay

by Kevin J. Richter, Shareholder & Amy Randazzo, Law Clerk at Mathis, Marifian and Richter, Ltd. & Student at St. Louis University

The Fair Labor Standards Act is the federal legislation that sets out minimum wage and maximum hour requirements. In general, employees must be paid a minimum wage for all hours worked and overtime pay at a rate of at least 1 and 1/2 times their regular rate of pay for any hours worked over 40 in a workweek.  While these protections extend to many workers, the FLSA provides a number of exemptions, such as so called "white collar" and "highly compensated" employees.  On May 18, 2016, the Department of Labor issued a final regulation that revises these overtime exemptions to bring more employees under the protection of the FLSA's overtime pay provisions.

To be considered exempt, employees must meet certain minimum requirements related to their primary job duties and, in most instances, must be paid on a salary basis at not less than certain minimum amounts as specified by the Department of Labor's various regulations. To meet the white collar exemption, the regulations generally require that each of the following be true: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee's job duties must primarily involve executive, administrative, or professional duties.

The Department of Labor's new rule primarily affects the second criterion, that of the minimum salary. Last changed in 2004, the Obama Administration felt the white collar exemptions needed to be updated in order to ensure that the FLSA's overtime protections are covering those originally intended by Congress.  Prior to the new rule, an employee was considered exempt if they fulfilled the criteria listed above and earned more than $455 per week or $23,660 per year.  Under the new rule, white collar employees are covered by the overtime provisions as long as they make less than $913 per week or $47,476 annually. According to the Department of Labor, around 4.2 million currently exempt workers will now become entitled to the overtime protections afforded by the FLSA.

Another set of currently exempt workers affected by the new rule are those that fall into the category of "highly compensated employees."  Currently, employees who aren't bona fide white collar employees but whose primary duties include office or non-manual work that involves regularly performing at least one of the defined "white collar" duties are still exempt if they have over $100,000 in annual compensation. Under the new rule, a highly compensated employee will not be exempt until they reach annual compensation of $134,004.  The Department of Labor estimates that an additional 65,000 employees will be eligible for overtime pay once the regulation takes effect.

In an attempt to keep the salary levels current with the economy, the new rule requires that the levels be revised every three years to prevent them from becoming outdated.  The next revision is set to take effect January 1, 2020. Employers need to be aware of the revised regulations and any subsequent revisions.  They may need to reclassify currently exempt employees as non-exempt or raise the salary of such employees to keep them exempt from the FLSA's overtime requirements.  The final rule goes into effect on December 1, 2016 so employers have some time to figure out how best to treat their employees whose status may change based on the new rule.

Kevin J. Richter is a shareholder at Mathis, Marifian & Richter, Ltd. Kevin focuses his practice in business law, estate planning, taxation law, employment law, employee benefits law and real estate law. 

 

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