The Department of Labor today filed a notice of appeal, challenging the nationwide preliminary injunction granted by an East Texas district judge last week. The preliminary injunction effectively halts sweeping changes to the FLSA overtime rules that were to take effect today. Below is my original blog post regarding those changes. If your business had not already taken steps to comply with the new laws, at this point in time you can safely continue in a holding pattern. Chances are very good that there won't be any rulings in this regard until after January 20, 2017. The incoming Trump administration will likely take a second look at these rules changes, as they were not popular with most Republicans when they were passed. If you have made significant changes and are unsure where to go from here, please give your trusted legal adviser a call. Stay tuned for further developments.
Summary of Changes to Overtime Rules:
Increases the “white collar” exemption minimum salary level from $455/week ($23,660/year) to $913/week ($47,476/year). To be exempt, an employee must be paid at least this salary level AND meet one of the duties tests set forth below.
The streamlined duties test for certain “highly compensated employees” will be increased from $100,000/year, to $134,004/year.
For most of the “white collar” exemptions to apply, they must be paid a salary. For the first time, the salary may include non-discretionary bonuses and incentive payments (i.e., commissions) toward the minimum salary level, but such amount can only be 10% of base salary and it is capped at 10% of the minimum salary/year (so the amount is capped at $4,748.00/year total), and only if such payments are made on at least a quarterly basis.
These numbers may be increased every three years (starting January 1, 2020) depending upon the level of weekly earnings in the U.S. Updated rates will be published at least 150 days before their effective date.
These Changes Apply To The 3 “White Collar” Exemptions:
Managing the enterprise or a department of the enterprise;
Direct work of at least two other full time employees AND
Ability to hire and fire others (or their opinion on such matters is a substantial factor in such decisions)
OR the executive owns 20% or more of the business and actively engages in the management of the company.
Primarily performs office (non-manual) labor;
Exercises discretion and individual judgment regarding matters of significance; AND
Performs work to support the business (as opposed to the work the business does to create revenue).
Paid a salary (except doctors, lawyers and teachers);
Primary duty is performing work that requires advanced knowledge;
In a field of science or learning; AND
Prolonged course of specialized knowledge.
Application of Changes to Non-Profits:
No blanket exception for non-profits in the FLSA.
Two tests apply, to determine if a non-profit's employees may be eligible for OT:
Applies only to activities conducted for a business purpose (e.g. a gift store).
Annual gross receipts of at least $500,000.
Contributions to the charity do not count towards this amount.
Even if the enterprise test is not met, if the employee routinely corresponds by phone, mail or email with people who are out of state (i.e., solicits donations) and/or routinely travels out of state, then the FLSA standards set forth above applies to that employee.
Volunteer hours do not count to determine if OT pay is due.
Non-profit cannot avoid paying OT by having an employee volunteer his time doing the same duties he is usually paid to do.
How to Prepare Now for These Changes:
Identify those employees who would now be non-exempt, under the new minimum salary levels.
Analyze their hours worked, to determine whether OT is an issue.
Non-exempt workers need to be shifted to punching a clock.
Modify your Policies and Procedures:
Punching in and out;
Who is responsible for processing time sheets;
How will time information be maintained by the company;
Payment of overtime, where applicable.
Decisions regarding whether to raise salaries or switch to hourly.
Redistribute workload among exempt and non-exempt employees.
Would temporary workers be an alternative during peak times?
Review contracts in place, determine whether any of them need to be modified in light of these changes.