New Overtime Regulations under the Fair Labor Standards Act

By: Kelsey M. Weiler

Under the federal Fair Labor Standards Act (FLSA), an employer is required to pay overtime to an employee who works more than 40 hours in a workweek unless the employee fits within an exemption from the requirement to pay overtime. One exemption, called the "white collar" exemption, provides that bona fide "executive," "administrative," and "professional" employees are exempt from the payment of overtime if they are paid on a salary basis at a certain salary level and perform certain exempt duties.

On May 18, 2016, the United States Department of Labor (DOL) issued final regulations that create a significant change in how employers determine whether an employee is exempt and therefore not entitled to overtime. The regulations, effective December 1, 2016, amend the salary level element of the white collar exemption by doubling the annual salary previously required for an employee to be considered exempt. The minimum salary level has been increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). If an employee is paid less than the new minimum salary after December 1, 2016, the employee must be paid overtime for all hours worked in excess of 40 hours per workweek. An employer’s failure to comply with the new requirement can result in substantial liability for an employer under the FLSA.

In an unprecedented move, the salary level necessary to maintain an exemption will be automatically updated every three years beginning in January 2020. Based on current growth projections, the DOL estimates that the minimum annual salary an employee must be paid in 2020 to be considered exempt will be $51,168.

The DOL estimates that over 20 million workers will become eligible for overtime and over 7.4 million employers will be affected as a result of these regulations. So what should employers do now? First, an employer should conduct an audit and review the exempt status of its employees. Then, the employer will need to decide whether to pay overtime or increase the employee’s salary above the $47,476 annual threshold to maintain the employee’s exempt status. Appropriate timekeeping records must be maintained for all non-exempt employees. When reclassifying employees as non-exempt, employers should communicate to their employees who will no longer be exempt that changes in federal law are the driving force behind their reclassification.

Paying an employee a salary above the minimum salary level does not solely determine whether an employee is exempt from payment of overtime. Employers must still analyze the duties that the employee performs and whether the employee is paid on a salary basis to determine whether such employee is exempt or non-exempt.

If you have any questions about the new regulations or the potential impact the regulations will have on your business, call one of our employment attorneys at 402-392-1250.