Court Blocks Implementation of Revised FLSA Regulations

Employment Law Alert

On Tuesday, November 22, a Federal Court Judge in the Eastern District of Texas issued a nationwide injunction halting the changes to the Fair Labor Standards Act (FLSA) regulations. This decision stops the regulations from going into effect on December 1, 2016.

Twenty one states filed an emergency motion for a preliminary injunction against the Department of Labor to halt the implementation of the revised regulations. The court found that the Plaintiff States who were challenging the law, established that the amendments to the FLSA regarding the salary level and the automatic updating of the salary every three years are without statutory authority. Therefore, the court enjoined the regulations from becoming effective on December 1, 2016.

There will likely be continued litigation and an appeal in this case, so it remains to be seen if this decision will be upheld.  Employers for now can follow the old salary threshold of $455 per week or $23,660 per year for exempt employees. Employers should keep in mind that any employee they classify as exempt from overtime must meet the duties of one of the exemption categories. The Department of Labor will be strictly scrutinizing employees' duties performed to ensure they are properly classified as exempt.

For more information about the FLSA regulations, contact employment attorney Elaina Smiley. Elaina's contact information is listed below.

This material is for informational purposes only.  It is not and should not be solely relied on as legal advice in dealing with any specific situation. 

Elaina Smiley is a Partner in Meyer, Unkovic & Scott's Employment Law Group.

She can be reached at: 412.456.2821 or es@muslaw.com.

New Changes to Overtime Pay Regulations Double Minimum Salary Levels for Exempt Employees

Elaina Smiley
412-456-2821
es@muslaw.com

On Wednesday, May 18, the U.S. Department of Labor (DOL) announced new changes to the Fair Labor Standards Act (FLSA) regulations that will likely make approximately 4.2 million workers eligible for overtime pay. The changes will go into effect on December 1, 2016.

Under the FLSA, employers must pay workers time-and-a-half for hours worked in excess of 40 hours in a work week. The FLSA includes some exemptions to the overtime rules, intended to exclude certain “white-collar” workers from the overtime requirements. Companies do not have to pay an employee overtime wages as long as the worker passes both the salary test and the duties test to meet the FLSA exemptions from overtime pay.

Here are the five most important things to know about the changes:

1. New salary threshold is $47,476
Under the current standard, which has been in place since 2004, workers are exempt from the overtime pay requirement if they are paid a minimum salary of $455 per week or $23,660 per year and their job duties fit the FLSA’s definitions of executive, administrative and professional categories. The new regulations, effective December 1, more than double the salary threshold to $913 per week or $47,476 per year.

2. Up to 10 percent of the salary threshold may be bonuses or commissions
For some employees, their weekly pay may fall below the $913 threshold, but non-discretionary bonuses, incentive pay or commissions may put their total pay over the annual minimum. Under the new rules, such an employee qualifies as exempt from overtime pay as long as the employee makes at least 90 percent of the threshold amount in salary and the remaining 10 percent is paid in non-discretionary bonuses, incentive pay or commissions distributed at least on a quarterly basis.

3. No changes to the “duties test”
Even if a worker is paid more than the minimum salary, the worker is still entitled to overtime wages unless their work passes the “duties test.” To meet the duties test, the worker’s job responsibilities must meet all of the FLSA’s criteria established under the various exemption categories. Initially, the DOL considered changing the duties test to further restrict the types of jobs that are exempt from overtime pay, but ultimately decided against making any changes.

4. New minimum salary to qualify as “highly compensated employee” is $134,004
The FLSA exempts “highly-compensated” workers from overtime pay as long as they regularly perform at least one job duty from the executive, administrative or professional exemption category and are paid a high salary. Previously, the DOL defined the salary of a highly compensated employee as $100,000 per year, but the new regulations raise it to $134,004.

5. The DOL will update the rules every three years
The DOL will update the minimum salary levels every three years, with the next update scheduled to take effect January 1, 2020. The DOL will calculate the new minimum salary threshold based on the pay of full-time workers in the 40th percentile in the lowest-wage census region. For highly-compensated workers, the DOL will calculate the threshold based on the wages of workers in the 90th percentile of full-time salaried workers nationwide. By 2020, the DOL expects the minimum salary level to rise to $51,168, and the salary for highly compensated workers will be roughly $147,524. The DOL will announce the new salary levels on August 1, 2019.

Employers should carefully review their current exempt employees’ compensation structure to determine which workers may be eligible for overtime wages under the new regulations.  Although the changes don’t take effect until December 1, companies should monitor those employees’ work hours now to determine the most cost-effective way to comply with the new rules. In some cases, it may be easier to simply raise the workers’ salaries to the threshold, assuming their job functions meet the FLSA duties test.  In other cases, employers may want to convert the employee to an hourly rate and pay overtime for hours worked in excess of forty hours per week and implement rules to limit excessive overtime.

The Small Business Regulatory Compliance Workshop

Elaina Smiley, Jason Mettley and Tony Thompson of Meyer, Unkovic & Scott LLP will be speaking at SMC’s seminar entitled, The Small Business Regulatory Compliance Workshop, on December 3 at the Rivers Club. Topics covered will include: City of Pittsburgh Paid Sick Days Act, Affordable Care Act Requirements, 401k Plans, FLSA (Exempt vs. Non-Exempt), Protection Based on Sexual Orientation, Pregnancy Accommodations, and Dress & Appearance Policies.

Visit their Agenda Page for more information or the Registration Page to RSVP.

Proposed Amendments to FLSA Overtime Exemptions

Elaina Smiley
es@muslaw.com
412.456.2821

On June 30, the Department of Labor (DOL) issued proposed amendments to the Fair Labor Standards Act (FLSA) overtime exemption tests that will make more employees eligible for overtime pay.

Under the FLSA, employers must pay workers time-and-a-half wages for time worked in excess of 40 hours in a work week. Currently, workers are exempt from the overtime pay requirement if their job duties fit the FLSA’s definitions of executive, administrative, and professional categories, and the employer pays a minimum salary of $455 per week or $23,660 per year. The DOL amendments propose to change the salary requirement to $921 per week, but the DOL footnotes that by the time of publication of the final rule the salary requirements will likely be $970 per week or $50,440 annually.

The FLSA also exempts “highly compensated employees” from overtime pay. To qualify as a “highly compensated employee,” employees perform non-manual duties of an executive, administrative or professional worker and are paid at least $100,000 annually. The DOL’s proposed amendments would increase the total annual compensation requirement to $122,148 per year.

The DOL also proposes to establish a method for automatically updating the salary levels on an annual basis based on economic considerations.

The DOL did not make any specific proposals to modify the standard duties tests for the exemption categories, but is seeking comments on whether the tests are working as intended and whether the tests should be modified. Specifically, the DOL requests comments on whether it should adopt a test similar to California’s which requires 50% of an exempt employee’s time to be spent performing exempt duties. The DOL expressed concern that the current test may allow employers to classify certain employees as exempt even though they spend a significant amount of their time performing nonexempt tasks. In particular, the DOL is concerned about lower level managers in the retail and restaurant industries who are currently exempt from overtime pay requirements because they supervise two or more full time employees. Despite their supervisory responsibilities, these managers perform a substantial amount of non-exempt work such as running cash resisters, stocking shelves, cleaning and filling in for non-exempt workers.

There is a 60-day comment period for the proposed regulations. The DOL has not said when it will issue the final rule, but it will most likely not take effect until mid-2016. Employers should start reviewing their employee classifications now to determine whether they will need to reclassify employees or increase salary levels.

For more information contact Elaina Smiley.

Overtime Rule Change For White Collar Workers

On March 13, 2014, President Obama signed a presidential memorandum, instructing the Secretary of Labor to update overtime regulations. The proposal would amend the regulations related to the Fair Labor Standards Act ("FLSA") to make overtime compensation available to a larger pool of employees who are currently exempt from federal overtime requirements. It is estimated that if implemented, this change could affect millions of workers who work more than forty hours in a workweek.

The proposed rule change may extend the availability of overtime compensation to employees currently classified exempt from overtime which could include workers such as store managers, restaurant managers, certain office workers and potentially others. Currently, workers meeting the requirements of executive, administrative or professional employees are exempt from being paid overtime if they are paid a fix salary of at least $455 a week and meet certain requirements pursuant to the Department of Labor regulations. The White House's position is that inflation has eroded the $455 a week salary requirement below the poverty line and has recommended increasing the $455 per week minimum salary threshold, which may be doubled under the new regulations.

It is anticipated that the changes may also affect the "duties test" for the executive exemption. Currently, under the "duties test," a manager is permitted to perform non-exempt duties for a majority of the day without losing the exemption as long as the primary (or most important) duty is management. Potential changes could require that a manager spend a larger percentage of his or her time performing executive or management duties in order to be classified as exempt. For instance, a store manager who performs non-managerial tasks for a majority of the day, such a stocking shelves and performing cashier duties, may not qualify as exempt and may be entitled to overtime compensation under the new regulations.

It will likely be many months before these proposals become final regulations, as they will have to go through the notice and comment period required under the Administrative Procedures Act. When changes were made to the FLSA in 2004, it took in excess of a year for the proposed changes to become effective.  Because the presidential memorandum leaves much room for interpretation, it is difficult to predict the extent of changes that the Department of Labor will implement.

For more information on this new memorandum or any other employment law issues, please contact Elaina Smiley or Gary Sanderson.