Proposed New Federal Employee Overtime Pay Rules

The United States Department of Labor (DOL) recently proposed changes to federal overtime pay regulations. The proposed regulations would change who is eligible for overtime under the Fair Labor Standards Act (FLSA). The changes are expected to make an additional 5 million workers nationwide eligible for overtime in 2016. We have seen an article that estimates 200,000 of those workers will be in Pennsylvania. The final regulations should be adopted in early fall.

Wage and hour claims (including class actions) are a fast-growing type of federal employment litigation. Employers should assess how the proposed changes may affect their business.

This blog covers proposed changes to the exemption for “white collar” (administrative, executive and professional) employees. It does not discuss a companion proposed change dealing with employees presently making over $100,000 per year (to be increased to $122,148 if the proposed changes become law).

Among other things, the FLSA requires non-exempt employees be paid 1-1/2 times their regular rate of pay for all hours worked over 40 hours in a work week. While all employees are presumed to be eligible for overtime, there are “white collar” exemptions for certain administrative, executive and professional workers who meet a three-part test: (1) employees must be paid on a salary basis, meaning they are paid a predetermined amount not subject to reduction because of variations in the number of hours worked; (2) employees must be paid a minimum salary of $455 per week ($23,660 per year); and (3) their primary job duties must satisfy certain “duties tests” set forth in DOL regulations. These “job duties” tests vary depending on the exemption sought.

The Changes
The DOL changes look to raise the weekly minimum salary needed to qualify for one of the “white collar” exemptions (administrative, executive and professional) from $455/week to $921/week in 2015 and $970 in 2016. This means first line supervisors and other employees currently covered by the executive, administrative or other white collar exemptions making less than $921 per week would suddenly be eligible for overtime regardless of their job duties. Under the proposed regulations, employees now exempt because they earn $455 or more a week but less than $921 per week in 2015 would now be entitled to overtime for all hours worked over 40 and would be required to track all hours worked.

The proposed regulations would also create a mechanism – tied to a percentile of earnings – to automatically update the salary and compensation level without requiring action by future administrations–basically an auto-pilot for increasing the levels in the future. (Hence the $970 per week in 2016.) Clearly, these changes will be far-reaching and will require employers to re-evaluate employee classifications and pay practices.
Steps Employers Should Take Now
Before these proposed changes to the FLSA regulations are enacted, there are some actions that employers may wish to take. These include:

  • Make sure your written job descriptions are up-to-date and accurately reflect the actual duties being performed by the employees. Assess whether the employees’ duties exempt them under the current and proposed regulations. See if employees qualify for another overtime exemption that does not include a minimum salary requirement, or their duties can be changed to make them qualify for such an exemption.
  • Prepare to convert employees currently making less than $921 per week to overtime-eligible, non-exempt employees. In order to minimize the additional expense related to this conversion and keep total compensation close to the current salary, employers will want to evaluate the number of hours these employees work, whether those hours fluctuate, and how those hours can be tracked. Review budgets to determine if adjustments need to be made to take the increased labor costs into account.
  • Review work schedules and work flow needs. Will converting currently exempt employees to non-exempt, overtime eligible employees require hiring of additional personnel?
  • Review your processes for tracking hours worked. The changes in the law will mean that employees who were formerly salaried, but are changed to hourly, non-exempt will be required to track all hours worked. This may be difficult to implement and require additional training and the implementation of better time tracking systems.
  • Review your employee handbook and/or personnel policies. It may be advisable to revise policies regarding approval of overtime, after-hours work, email and/or “Bring Your Own Device,” given the increased number of hourly, non-exempt employees covered by those policies. In addition, supervisors may need additional training about work time, after hours or off-site work and time tracking. Remember, the FLSA requires non-exempt employees be paid for all hours worked, whether approved or not.

We have prepared this blog as a service to our clients. As general business attorneys, we routinely handle basic employment matters for our clients. For more advanced employment matters, we refer our clients to employment law attorneys with whom we maintain relations. If you are a client and need to address this topic, please contact us and we will be glad to refer you to employment law compliance counsel.