In case you haven’t heard, on May 17, 2016, the U.S. Department of Labor (DOL) published colossal changes to the overtime rule that will make approximately over 4 million currently exempt employees eligible for overtime pay later this year!
Although it was kept a bit on the “down low” without much media attention, on June 30, 2015, the United States Department of Labor (DOL) released proposed regulations that would modify certain provisions of the Fair Labor Standards Act (FLSA). Specifically, the proposed regulations increase the minimum salary required to be earned by an employee in order for that employee to be exempt from the FLSA overtime requirements. The DOL issued a Notice of Proposed Rule Making (NPRM) entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.”
Without further ado, we will review for you the highlights of the final rule, but first let’s review what the current law entails.
The FLSA by and large requires covered employers to pay their employees at least the federal minimum wage (currently $7.25 an hour) for all hours worked, and overtime premium pay of one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. However, there are a number of exemptions from the FLSA’s minimum wage and overtime requirements. Specifically the FLSA exempts from both minimum wage and overtime protection “any employee employed in a bona fide executive, administrative, professional capacity, or in the capacity of outside salesman.” The FLSA does not define the terms “executive,” “administrative,” “professional,” or “outside salesman.”
Since 1940, the regulations have commonly required each of the following three tests to be met for the exemptions to apply:
To avoid unfavorable actions and law suits, Human Resource Professionals and business owners will need to take some steps to avoid common FLSA pitfalls. It will be necessary for employers to promptly analyze the impact the final rule will have on each employee and determine how it will respond to the new rules by increasing salaries of those properly classified as executive, administrative, or professional to meet new salary level, paying more overtime, limiting overtime hours, or reducing base salary to compensate for overtime hours while still paying the hourly minimum wage.
Employers should consider the following actions:
Around 90 percent of employment class actions are related to wage and hour issues. The U.S. Department of Labor (DOL) estimates that as many as 70 percent of employers aren’t in compliance with the FLSA in some material way. Under the Obama administration, Secretary of Labor Thomas Perez and Wage and Hour Division Administrator David Weil have been committed to stepped-up enforcement.
The financial consequences of FLSA violations can be extensive and include:
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