Tag Archives: Overtime Rules

U.S. Department of Labor Releases Proposed Overtime Rule

March 27, 2019

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On March 7, 2019, the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (“NPRM”) proposing to revise the overtime salary thresholds under the Fair Labor Standards Act (FLSA). The proposed rule would increase the weekly salary threshold for exempt employees from $455 ($23,660 annually) to $679 ($35,308 annually).

The DOL made earlier efforts to revise the overtime salary threshold, which stalled due to heavy legal opposition.  This NPRM is a new effort by the DOL to address the current salary threshold that dates back to 2004.

Determining Exempt Status

In order to be exempt from FLSA overtime requirements, an employee must meet both the “salary test” and “duties test.”

Salary Test

An employee must meet two prongs of the salary test:

  1. The salary basis test – With limited exception, the employee be paid a predetermined amount, regardless of quality or quantity of work, and the amount must at least equal the required minimum wage.
  2. The salary level test – The minimum salary for an employee to qualify as exempt would be $679 per week or $35,308 annually.  This is the primary focus of the NPRM.

Duties Test

The duties test exempts those that primarily perform executive, professional and administrative duties. For additional information on the duties test, please refer to the DOL wage and Hour Division (WHD) Fact Sheet #17A.

Overtime Eligibility

Non-exempt employees, as defined under FLSA, must be compensated at 1 ½ times their normal rate of pay for any hours worked over 40 hours in a work week. Pay for time not worked such as vacation, sick leave, or holiday pay is not counted toward the overtime requirement. Non-exempt employees can be paid on an hourly, salary, piece rate, or commission basis so long as:  (i) they are compensated at or above the required minimum wage rate for all hours worked;  and (ii) are paid overtime for any hours worked in excess of 40 hours in a single work week.

In addition to FLSA requirements, an employer is still required to comply with any applicable state or local wage and hour laws.

Other Proposed Changes

The NPRM also includes the following:

  • An increase in the total annual compensation requirement for  “highly compensated employees” subject to the “minimal duties” test from $100,000 to $147,414 annually;
  • Employers may use non-discretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level; and
  • A statement of commitment by the DOL to periodically review the salary threshold.

The NPRM does not change the “duties test” for determining exempt status or change the current overtime protections for police officers, firefighters, paramedics, nurses, laborers or non-management employees working in maintenance, construction, or other similar occupations.

Additional information about the proposed rule is available at here.  Once the proposed rule is published in the Federal Register, interested members of the public will have 60 days to submit comments by visiting www.regulations.gov.

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Overtime Rule – Dead? What Employers Still Need To Do

March 2, 2017

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Since Reince Priebus, President Trump’s Chief of Staff, issued a memo on January 20, 2017, to freeze federal regulations that have not gone into effect, it is looking like the overtime rule might be losing its pulse. While this doesn’t mean it is absolutely over, it’s hard to imagine the Trump administration fighting to implement the Obama administration overtime rule.

Even though the overtime rule might not be a concern, employers still have some work to do. The bigger picture of the overtime rule was identifying which positions were exempt for overtime pay, and verifying the employees would be paid correctly.  Although the rule has been shelved,  any inaccuracies discovered in pay practices still need to be fixed.

As employers learned with the overtime rule, the first step in determining the Fair Labor Standards Act (FLSA) exemption is the Salary Basis Test.  While the overtime rule tweaked the salary basis, many employers overlooked the second test to qualify as exempt, the Duties Test.  The position must comply with one of the duties tests to be exempt from overtime pay.  So, employers should subject each unique position to both the salary basis test and the duties test to get a final determination on the exemption from overtime.  Unless both tests are met, the position is non-exempt and employees in those positions are entitled to overtime pay.  A position cannot be forced into exemption.  You can try, but the DOL is pretty savvy at determining exemption status.

In addition to misclassification, another issue is paying employees correctly within the classifications. It is a common occurrence to come across misunderstandings on how each classification should be paid.  Sometimes employers can get too “crafty” in looking for ways to reduce payroll and violate FLSA requirements.

Exempt positions are paid a predetermined amount (salary basis) and pay is not dependent on the hours or days worked, or the quantity or quality of the work performed.  Situations in which an employer can make permissible deductions to an exempt employee’s salary are a short list:

  • Exempt employees do not need to be paid for any workweek in which they perform no work. Answering work related text messages and emails are considered working.
  • Exempt employees who are absent for a full day or more for personal reasons other than sickness or accident.
  • Exempt employee absences of a full day or more caused by sickness or disability, if the company maintains a plan that provides compensation for loss of salary caused by sickness and disability and the employee exhausted his or her “bank” of leave.
  • Penalties imposed for violation of safety rules of major significance
  • To offset any amounts received by an employee as jury or witness fees or military pay. However, deductions may not be made for absences caused by employee jury duty, attendance as a witness or temporary military leave.
  • Unpaid disciplinary suspensions of one or more full days for breaking workplace conduct rules.
  • Partial weeks worked during the initial or final weeks of employment.
  • In some cases, when a salaried/exempt employee has worked a reduced or intermittent work schedule under the Family and Medical Leave Act (FMLA).

The employer may not make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business; such as the business being closed for inclement weather. If the exempt employee is ready, willing and able to work, deductions from the employee’s pay may not be made when no work is available.

Additionally, the permissible deductions need to be applied consistently. If you deduct one exempt employee’s pay to offset jury duty fees you need to do it to all exempt employees.

Following the guidelines for the DOL’s permissible deductions is vital. If an employer makes an impermissible deduction this could violate the exemption status.  Violating the exemption status will render the position non-exempt and the individual in the position will be eligible for overtime, and could incur penalties per each misclassification.

Alternatively, non-exempt get paid for actual hours worked, all hours worked.  It does not matter if the employee was not scheduled to work.  If the employer requires or allows an employee to work, on or off the clock, the employer has suffered or permitted the employee to work and the employee needs to be paid.

Since non-exempt positions are paid by hours worked it is important to know what the DOL considers compensable hours. Problems occur if employers are not aware when non-exempt employees need to be paid.  The DOL has Defined Non-Exempt Compensable Time and includes:

  • Waiting Time
  • On-Call Time
  • Sleeping Time and Certain Other Activities
  • Lectures, Meeting and Training Programs
  • Travel Time

But the one that is often breached is rest and meal time. Rest periods of short duration, usually 20 minutes or less, are common and are customarily paid for as working time. These short periods must be counted as hours worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unmistakably communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s policy, and any extension of the break can be disciplined.

While bona fide meal periods (typically over 20 minutes) generally do not need to be compensated as work time, the employee must be completely relieved from work duties during the meal break. If the employee is not relieved and performs any job duties, whether suffered or permitted, the employee must be paid for that meal break.

A common example would be if a non-exempt employee is eating a meal while at their desk working, or if the company has a lunch meeting, the employee must be paid. If the employer makes a deduction then it could be in FLSA violation of:

  • Not paying an employee for time worked;
  • Unauthorized deduction if your payroll system automatically deducts for meal breaks; or
  • Violating state laws that require meal breaks.

While federal wage and hour laws require non-exempt employees to receive overtime pay for any time worked over 40 within the defined workweek, employers need to know their state overtime laws as well. Some states have daily overtime requirements in addition to the workweek.

Additionally, private employers need to always pay non-exempt overtime as required. It is completely prohibited for private employers to use compensatory time (comp time) in lieu of paying non-exempt employees overtime wages.

While the FLSA Overtime Rule is now nothing but a shadow, the lesson from the overtime rule is employers still need make sure the positions are classified correctly and they are making proper deductions and paying as required by FSLA. Those rules have not changed.

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