In May 2016, the Department of Labor published its final rule on overtime regulations under the Fair Labor Standards Act of 1938 (FLSA). The new regulations expand overtime pay to many formerly exempt employees—with the minimum salary for an overtime-exempt employee increasing from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). Approximately 4.2 million new workers will be affected by the Department of Labor’s new rule. This change means that an employee must make at least $913 a week before they can be considered exempt from FLSA overtime requirements. According to the Department of Labor, this regulatory change is supposed to identity and protect salaried workers who are entitled to overtime pay when they work long hours.
The FLSA was enacted to guarantee a minimum wage and to ensure that employees receive overtime pay totaling at least time and one-half the employee’s regular rate.
The FLSA was enacted to guarantee a minimum wage and to ensure that employees receive overtime pay totaling at least time and one-half the employee’s regular rate. Employers must begin calculating overtime pay for non-exempt employees who work more than 40 hours a week. Employees can be exempt from the overtime requirements if they make the new rate of $913 a week and if their job duties are primarily executive, administrative, or professional. Colloquially, this is referred to as the “white collar” exemption to the FLSA overtime requirement.
According to the Department of Labor, when the definition of who is eligible for overtime payments becomes outdated, employees that are meant to be covered by the FLSA do not receive the protections envisioned by congress. An employer must meet three requirements for an employee to be considered exempt from the overtime requirements of the FLSA: (1) the employee must be paid a predetermined salary that is not subject to reduction because of variations in the quality or quantity of work, referred to as the salary basis test; (2) the employee’s salary must meet a minimum specified amount, referred to as the salary level test; and (3) the employee’s job duties must be primarily executive, administrative, or professional, referred to as the standard duties test.
Job duties, not job titles, determine whether an employee is exempt from the FLSA overtime and minimum wage requirements.
The Department of Labor has not made any changes to the “standard duties test” used to determine whether the employee performs administrative, executive, or professional functions. Job duties, not job titles, determine whether an employee is exempt from the FLSA overtime and minimum wage requirements. When researching the effect of the final rule, the Department of Labor quantified three separate costs for employers: regulatory familiarization costs, adjustment costs, and managerial costs. The new final rule does not make any changes to the current federal minimum wage, which remains $7.25 per hour. No provision in the FLSA prevents individual states from setting a minimum wage that is higher than the federal minimum wage. The FLSA does not have any special provisions pertaining to non-profit organizations, nor does the final rule.
On 7 June 2016, 44 Senate Republicans filed a motion of disapproval against the Department of Labor’s final rule through the Congressional Review Act, a statute that allows congress to overrule a regulation through the passage of a joint resolution. The motion was introduced in the House of Representatives by Tim Walberg, a Republican Representative from Michigan’s 7th Congressional District and the chairmen of the Senate Subcommittee on Workforce Protections. Representative Walberg stated that the regulation could be a career advancement hindrance for employees who were formerly classified as exempt and will now be converted to hourly status. Walberg also believes that the new rule does not factor in the realities of the modern workplace, where employees often work remotely. Requiring employees to complete additional hours through remote technology subjects employers to overtime liability.
The joint resolution is still subject to the president’s veto power like any other piece of legislation, and it is doubtful that Congressional Republicans have enough support to override an executive veto.
The resolution needs a simple majority in both chambers before it can be presented to the president to be signed into law. The joint resolution is still subject to the president’s veto power like any other piece of legislation, and it is doubtful that Congressional Republicans have enough support to override an executive veto.
The motion requires the Secretary of Labor to “conduct a full and complete economic analysis” focusing on the affect the regulation would have on small businesses, non-profits, and Medicare and Medicaid dependent healthcare providers. The congressional findings of the motion state that the salary exemption increase from $455 per week to $913 per week would be a 113% increase during the first year after the final rule would take effect.
Among the 44 disapproving Republicans is Sen. Lamar Alexander of Tenn., the chairmen of the Senate Health, Education, Labor and Pensions committee. Alexander said that the FLSA regulation will potentially hurt employees because some employers will be forced to reduce employee hours, the new regulation could limit workplace flexibility, and that some employers will be forced to cut jobs in response to economic pressure from the rule. Republicans in the House Education and Workforce Committee are especially concerned about the effect the new final rule will have on non-profits, small businesses, and colleges and universities. However, the Department of Labor received many comments from university postdoctoral candidates who said they wanted higher wages.
In contrast to Sen. Alexander, President Barack Obama has stated that the final rule is “the single biggest step I can take through executive action to raise wages for the American people.” On 13 March 2014 President Obama signed a Presidential Memorandum instructing the Department of Labor to update the regulations determining which white collar workers are subject to the overtime benefits of the FLSA. Specifically, the President asked the Department of Labor to “modernize and simplify” the overtime regulations.
The Department of Labor has supplied suggestions for employers that explain how to implement the updated salary requirements. Employers have the option of increasing a worker’s base salary to the weekly $913 if they wish to keep employees exempt from the overtime requirements, so long as those employees continue to perform executive, administrative, or professional duties. Employers are also permitted to reduce the overtime hours of their employees. Additionally, employers are permitted to reduce employee salaries (so long as the employee continues to make at least the minimum wage) and allocate some of the funds saved by the reduction for the requisite time-and-a-half overtime pay.
The final rule will become effective to all workplaces that are subject to the FLSA on 1 December 2016.
The final rule will become effective to all workplaces that are subject to the FLSA on 1 December 2016. The Administrative Procedures Act requires regulations to have a minimum 30-day effective date. The change to the minimum salary overtime exemption, implemented in 2004, had a 120-day effective date, with the current 1 December 2016 deadline providing over 180 days for employers to adjust to the regulations. The Department of Labor relied on salary data from the fourth quarter of 2015 from the Bureau of Labor Statistics to determine the appropriate minimum overtime exemption salary.
In the future, automatic updates to the salary threshold will occur once every three years. The first such adjustment will become effective on 1 January 2020. Prior to the current regulations, the Department of Labor has made updates to the minimum overtime exemption salary seven times since 1938, most recently in 2004. Based off of the Department of Labor’s projections, the standard rate for exempt employees in 2020 will be at least $984 per week, or $51,168 annually.