Important Changes Pending to FLSA Exempt Status and Overtime Regulations

The Vandeventer Black Construction and Government Contracts and Labor and Employment Law Groups have noted some important pending changes to the FLSA Exempt Status and Overtime Regulations.

The Changes:
The U.S. Department of Labor (DOL) is issuing regulations updating the Fair Labor Standards Act (FLSA). We anticipate that the final regulations will be issued this summer, likely with a 60-day compliance requirement. Under the proposed new regulations, any employee who is paid less than $50,440 per year will be entitled to overtime pay. This change will have a major impact on overtime pay obligations. Companies need to review current policies and procedures now to prepare for timely compliance, and to limit the cost impact of the new regulations.

The FLSA provides for a federal minimum wage, a standard 40-hour workweek, and pay at time-and-a-half for all overtime hours.  The law also includes several exemptions under which certain employees are not entitled to overtime pay. Currently, for most exemptions, in addition to meeting a duties test an employee must be paid on a salary basis at least $455 per week ($23,600 annually). The proposed regulations will more than double that minimum salary to approximately $970 per week ($50,440 annually).  Likewise, the minimum annual compensation for the “highly compensated” exemption will increase from $100,000 to $122,148. These amounts will be adjusted annually.

Common Exemption Misconceptions:

There is a common misconception that payment of a salary is the only requirement to avoid overtime pay obligations. This is wrong as there are other mandatory requirements: in order to be exempt from overtime, the employee also must perform duties that meet certain tests set forth by the DOL.

For example, to qualify as an exempt “executive” an employee, in addition to being paid a salary, must (i) have the primary duty of management of the business or a department, (ii) customarily and regularly supervise at least two other full-time employees, and (iii) have authority or significant influence over decisions to hire or fire.

Under current economic conditions many employers have reduced staff without consideration of the requirement that the exempt employee must supervise at least two other full-time employees. Supervision of workers furnished by a temporary labor agency or workers from another company, such as a subcontractor, does not meet the requirement.

Another common misconception is that payment of a minimum wage under a Davis Bacon Act or Service Contract Act wage determination is sufficient. However, all employers—even those with federal contracts—must comply with the FLSA.