On May 18, 2016, the Department of Labor published final regulations to increase the minimum salary requirements for most exempt employees under the Fair Labor Standards Act ("FLSA"). The new regulations are scheduled to take effect December 1, 2016.
What is the FLSA?
The FLSA is a Federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards for covered employers. The FLSA guarantees a minimum wage for all hours worked and limits the number of hours an employee may work without additional compensation to 40 hours per week. States also have wage and hour laws that generally track the FLSA but may impose different requirements.
Are there any exceptions to the FLSA?
Yes. The Act provides exemptions from the minimum wage and overtime provisions for certain employees including those engaged:
- In a bona fide executive, administrative, or professional capacity
- In the capacity of an outside sales employee
- As a computer systems analyst, computer programmer, software engineer, or similarly skilled computer employee.
Job titles alone are insufficient to establish exemption; the exempt or non-exempt status of an employee is determined based on whether the employee's duties and (in most cases) salary meet the applicable requirements.
What changes were made in the new FLSA regulations?
- The minimum salary level for most exempt employees was increased from $23,660 ($455 per week) to $47,476 ($913 per week)
- Employers are permitted to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the new minimum salary level
- The minimum annual compensation for "highly compensated employees" (who need not meet one of the regular "duties" tests but need only customarily and regularly perform any one or more of the exempt duties of executive, administrative, or professional employees) was increased from $100,000 to $134,004
- The minimum salary levels will automatically update every three years
*NOTE: Workers who do not meet the applicable "duties" test are not exempt, no matter how much they are paid and whether they are paid on a salary or an hourly basis.
Does the minimum salary requirement apply to all exempt employees?
No. For example, the minimum salary requirement does not apply to teachers, lawyers, doctors, and outside sales employees. Further, employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment can meet the minimum salary requirement if they are paid on a salary basis at a rate at least equal to the entrance salary for teachers in their school.
What should employers do?
For exempt employees who are subject to the salary basis test but do not meet the new minimum salary requirements, employers will have to either:
1) Increase their compensation to maintain their exempt status (after assuring that the appropriate "duties" test is met); or
2) Reclassify them as non-exempt and pay overtime (at time and one-half the regular hourly rate) for any hours worked in excess of 40 hours in a workweek, unless an exception applies.
As it is likely that more employees will be classified as non-exempt under the new regulations, it will be even more important for employers to have good systems in place for recording hours worked. Employers may wish to impose "email curfews" on non-exempt employees or withhold permission to work from home (except as a reasonable accommodation of a disability) in order to monitor hours worked and control overtime expenses. Supervisors will need to pro-actively manage staff members' work schedules and duties to minimize overtime hours. (Recall that non-exempt employees must be paid for all overtime worked, but working without supervisory authorization can be grounds for disciplinary action.)
What are the risks of non-compliance?
An employer that violates the minimum wage or overtime provisions of the FLSA is liable to the employees affected in the amount of their unpaid wages plus an additional equal amount as liquidated damages. Courts may award the plaintiffs reasonable attorneys' fees and costs. Repeated or willful violations may result in civil monetary penalties. "Willful" violations also increase the statute of limitations from two years to three years.
If an employee is jointly employed by two or more employers who are not "completely disassociated," all of the employee's work for all of the joint employers during the workweek is considered as one employment for purposes of the Act. Finally, attempted waivers of FLSA claims, even in settlements, are not valid unless approved by a court or the Department of Labor.
Please contact Kathy Hoskins, Steve Metzger, or another member of the firm’s Employment Law Group if you need assistance in complying with this new rule.
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