The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector. There are two ways in which the FLSA applies to employers:
1. Enterprise Coverage: Employees who work for certain businesses or organizations are covered by the FLSA. These enterprises, which must have at least two employees, are (1) those that have an annual dollar volume of sales or business done of at least $500,000 and (2) hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies.
2. Individual Coverage: Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between states ("interstate commerce"). The FLSA covers individual workers who are "engaged in commerce or in the production of goods for commerce."
Bottom line, almost every employee in the United States is covered by the FLSA. The Wage and Hour Division (WHD) of the DOL administers and enforces the FLSA with respect to private employment.
Current Overtime Standards and “White Collar” Exemption
With some exceptions, overtime (pay at a rate of not less than one and one-half times the regular rate) must be paid for work over forty hours a week. There are exceptions to the application of this rule. The most common is often referred to as the “541,” “EAP,” or “white collar” exemption. This exception applies to certain executive, administrative, professional, outside sales, and computer employees.
Under current law, these “white collar” employees are exempt from overtime if they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the "salary basis test"), paid at least $455 per week ($23,660 annually) (the "salary level test"), and primarily perform executive, administrative, or professional duties (the "duties test"). Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers).
The DOL’s proposed overtime rules focus primarily on revising and delimiting the exemptions for executive, administrative, professional, outside sales and computer employees. Specifically, the DOL is proposing to:
1. Set the standard salary level equal to the 40th percentile of earnings for full-time salaried workers ($921 per week, or $47,892 annually for a full-time employee);
2. Set the highly compensated employee annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually); and
3. Include a mechanism in the new regulations that will automatically update the salary and compensation thresholds on an annual basis.
To be exempt, white collar employees would still need to satisfy the "duties test." While the DOL is not proposing specific regulatory changes to the “duties test” at this time, the DOL is seeking comments from the public as to what changes should be made, if any.
The DOL published a Notice of Proposed Rulemaking (NPRM) on July 6, 2015 in the Federal Register inviting interested parties to submit written comments on the proposed rules on or before September 4, 2015 by clicking here.
Once the comment period has closed, the DOL must consider the comments received and incorporate into the adopted rule a concise general statement of the basis and purpose of the final rules that are adopted. The final rules, along with the general statement, must be published in the Federal Register not less than 30 days before the rule’s effective date.
For more information and compliance assistance, employers should utilize the following resources:
• The Law;
• The Regulations;
• Interpretive Guidance;
• Workplace Posters;
• Employment Law Guide;
• Fact Sheets; and
• DOL Home Page.
The DOL is presently engaged in an informal administrative rulemaking process that will likely result in significant changes to federal overtime laws and regulations. Employers should review the proposed rules and prepare for implementation of the final rules in 2016.
Click here for a PDF of this article.
This article was written by Michael J. Belaen. Michael serves as the director of public affairs and legal counsel to the Saint Paul Area Chamber of Commerce. Michael is a cum laude graduate of the University of Hamline School of Law.
Disclaimer: This article is intended to provide general information only and shall not be construed as rendering any legal advice or opinion. An attorney-client relationship is not created by reading this article.