Fair Labor Standards Act (FLSA) – Update

Fair Labor Standards Act (FLSA) – Update

Background

You may have or may not have heard of the FLSA, but most of us have probably have a general understanding of what overtime pay is.  Simply, the FLSA sets the federal minimum wage and provides rules to Employers in establishing whether an Employee is eligible for overtime pay, or not.

Generally, there are 3 tests that must be met in order for an Employee to be “exempt” from the overtime rules.  If any of these 3 tests are not met, then the Employee is eligible for overtime pay.  These 3 rules are as follows:

  1. The Employee must be paid a predetermined and fixed salary that is not subject to reduction due to quality or quantity of work performed (“salary test”);
  2. The Employee must be paid a minimum specified amount (“salary level test”); and
  3. The Employee’s job responsibilities must primarily involve executive, administrative, or professional duties (“EAP duties test”).

Once an employee is determined to be “nonexempt” or in other words, entitled to overtime pay, the employee must work in excess of 40 hours in a 7 consecutive day work week, in order to receive overtime pay.

Modern Day

In 2014, President Obama directed the Department of Labor (“DOL”) to update the overtime regulations by modernizing the rules.  So the DOL came up with a rule that basically DOUBLED the “salary level test” from $23,660 per year to $47,476 per year and would automatically update the compensation levels every 3 years.  This rule was to become effective on December 1st, 2016 and would have affected over 4 million employees who are currently “exempt” from overtime pay.

However, on November 22, 2016 a US District Court judge in the Eastern District of Texas put a preliminary stop to the DOL’s implementation and enforcement ability of this new overtime rule.  The main arguments presented by the Plaintiffs were that they would face imminent monetary loss that was a direct result of the DOL’s doubling of the salary level threshold and that Congress’ original intent of the EAP duties test was to define responsibilities, and NOT a minimum specified salary amount.  In other words, by raising the salary threshold, the DOL basically created a “by default” salary-only test that ignores the “EAP duties test”.  These millions of American’s who currently meet the “EAP duties test” would now fail the “salary level test”, and Congressional intent was to define workers based on their job functions and not based on their salaries.

So What Does this Mean for Employers and Employees Currently?

Current businesses practices for paying overtime remain unchanged until such time the courts work this out.  If History has taught us anything, always be prepared……..and change is more likely coming than not!  If you haven’t already done so, you should analyze which employees are currently paid under the proposed $47,476 yearly salary amount and whom have historically received overtime hours and pay.  Based on this analysis, you should determine whether it may be beneficial to give those employees a raise and/or additional responsibilities where they would fall in the “Exempt” category and be ineligible for overtime pay.

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