3 Things About The New Overtime Law

In 1938, the Fair Labor Standards Act (FLSA) was signed into law by President Franklin D. Roosevelt. The objective of the FLSA was summarized as the “elimination of labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency, and well-being of workers.” The act introduced minimum wage, the 40-hour work week, and overtime pay at the rate of one-and-a-half times regular pay. At the time of its passage, the minimum wage was set at a whopping 25 cents per hour! As does most everything, the FLSA has evolved over time (through amendments), and today, federal minimum wage sits at $7.25/hr.

In May of this year, President Obama announced an update and the publication of the Department of Labor’s “final rule”, which will extend overtime pay protections to 4 million workers in the first year of its publication. Workers earning less than $913 a week or $47,476 a year, will fall under the threshold of the final rule and will be entitled to overtime pay.

The FLSA does allow employers to claim exemptions from those requirements for certain employees whose jobs meet specific criteria collectively referred to as the “white collar” exemptions. Employers may be able to claim a white collar exemption if the employee:

  • Is salaried (meaning workers are paid a fixed salary that is not subject to changes based on work quality or quantity). This requirement is known as the salary basis test.
  • Is paid more than the weekly specified level which is $913/week or $47,476/year. This is the salary level test. It is important to note that this salary is not a minimum wage requirement and is only a threshold if an employer wants to claim a white collar exemption.
  • Primarily perform executive, administrative or professional duties. This requirement is known as the duties test.

Generally, all three requirements need to be met for an employer to claim an exemption on behalf of their employee.

As a note, the FLSA generally applies to employees of enterprises that have an annual gross volume of sales made or business done totaling $500,000 or more, and to employees individually covered by the law because they are engaged in interstate commerce or in the production of goods for commerce. In addition, employees of certain entities are covered by the FLSA regardless of the amount of gross volume of sales or business done. These entities include:

  • hospitals
  • businesses providing medical or nursing care for residents
  • schools
  • public agencies

Employers Should Also Note That:

  • The new overtime protection gives them the flexibility to choose whether they want to increase employees’ salaries to the minimum threshold, to pay overtime premium, or to scale back employee hours.
  • The effective date of the final rule is December 1, 2016.
  • The overtime rule will automatically update the salary threshold every three years based on wage changes. The next update will take place beginning January 1, 2020. Employers will be able to prepare and estimate salary updates ahead of time.

More details on exemptions and tests can be found under the Small Entity Compliance Guide on the Department of Labor website.

If you have any questions, you can find additional information on the U.S. Department of Labor Website, Wage and Hour Division or call their toll-free information and helpline at 1-866-487-9243.

Contributed by:
Zach Miller
Senior Accountant