DOL Released Proposed Changes to Overtime Rules

May 10th, 2016 by Thomas Harte

By Karen Kirkpatrick, On Your Mark Consulting

On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which ‘‘white collar’’ workers are protected by the Federal Labor Standards Act’s minimum wage and overtime standards. The memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.

The Department’s outreach has made clear that there are widespread misconceptions about overtime eligibility under the FLSA. For example:

• Many employers and employees mistakenly believe that payment of a salary automatically disqualifies an employee from entitlement to overtime compensation irrespective of the duties performed.
• Many employees are unaware of the duties required to be performed in order for the exemption to apply.
• Many employers seem to believe that nonexempt white collar employees must be converted to hourly compensation.
• Other employers erroneously believe that they are prohibited from paying nondiscretionary bonuses to EAP employees, given that they cannot be used to satisfy the salary requirement.
• Some employers also mistakenly believe that the EAP regulations limit their ability to permit white collar employees to work part-time or job share (EAP is the term used for FLSAs overtime exemption rules).

The Department believes that many of these misconceptions can be addressed through its education and outreach efforts. They also noted that multiple stakeholders on both sides of the issue expressed frustration with the exempt/nonexempt terminology and asked the Department to consider more descriptive terms. The Department recognizes that the terms ‘‘exempt’’ and ‘‘nonexempt’’ are not intuitive and can be confusing to both employers and employees.

In an attempt to address this concern, the Department uses the terms ‘‘overtime protected’’ and ‘‘overtime eligible’’ at times in this Notice of Proposed Rule Making (NPRM) as synonyms for nonexempt, and ‘‘not overtime protected’’ and ‘‘overtime ineligible’’ as synonyms for exempt. While the Department will continue to use the terms exempt and nonexempt as technical terms to ensure accuracy and continuity, we will, where appropriate, endeavor to use these more descriptive terms to aid the regulated community. The Department also uses the term ‘‘EAP exemption’’ throughout this NPRM to reflect the section 13(a)(1) exemption for executive, administrative, and professional employees.

SUMMARY of TERMS:

In summary, “Overtime Protected” employees are eligible for overtime and were historically classified as “non-exempt” and “Overtime Ineligible” are not eligible for overtime and were previously considered “Exempt.”

Assuming two percent growth between the first quarter of 2015 and the first quarter of 2016, the Department determines that the 40th percentile weekly wage in the final rule would likely be $970, or $50,440 for a full-year worker. This will likely accomplish the goal of setting a salary threshold that adequately distinguishes between employees who may meet the duties requirements of the EAP exemption and those who likely do not.

LEGISLATIVE HISTORY:

Although section 13(a)(1) exempts covered employees from both the FLSA’s minimum wage and overtime requirements, its most significant impact is its removal of these employees from the Act’s overtime protections. It is widely recognized that the general requirement that employers pay a premium rate of pay for all hours worked over 40 in a workweek is a cornerstone of the Act, grounded in two policy objectives:

• The first is to spread employment by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours, thereby reducing involuntary unemployment. See, e.g., Davis v. J.P. Morgan Chase, 587 F.3d 529, 535 (2d Cir. 2009) (‘‘The overtime requirements of the FLSA were meant to apply financial pressure to spread employment to avoid the extra wage and to assure workers additional pay to compensate them for the burden of a workweek beyond the hours fixed in the act.’’).
• The second policy objective is to reduce overwork and its detrimental effect on the health and well-being of workers. See, e.g., Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 739 (1981).
• The FLSA was designed to give specific minimum protections to individual workers and to ensure that each employee covered by the Act would receive a fair day’s pay for a fair day’s work and would be protected from the evil of overwork as well as underpay.

The employer bears the burden of establishing the applicability of any exemption from the FLSA’s pay requirements. Job titles and job descriptions do not determine exempt status, nor does paying a salary rather than an hourly rate. To qualify for the EAP exemption, employees must meet certain tests regarding their job duties and generally must be paid on a salary basis of no less than $455 per week. In order for the exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations. The duties tests differ for each category of exemption.

The HCE exemption applies only to employees whose primary duty includes performing office or non-manual work; non-management production line workers and employees who perform work involving repetitive operations with their hands, physical skill, and energy are not exempt under this section no matter how highly paid.

SUMMARY of the DOLs VIEW of CHANGES:

FLSA requires: Employers covered by the FLSA to make, keep, and preserve records of employees and of wages, hours, and other conditions of employment. A FLSA-covered employer must maintain the records for such period of time and make such reports as prescribed by regulations issued by the Secretary of Labor. Here is a handy FLSA reference guide.

The Department has promulgated regulations at 29 CFR part 516 to establish the basic FLSA recordkeeping requirements. No new information collection requirements would be imposed by the adoption of this NPRM; rather, burdens under existing requirements are expected to increase as more employees receive minimum wage and overtime protections due to the proposed increase in the salary level requirement. More specifically, the proposed changes in this NPRM may cause an increase in burden on the regulated community because employers will have additional employees to whom certain long established recordkeeping requirements apply (e.g., maintaining daily records of hours worked by employees who are not exempt from the both minimum wage and overtime provisions).

Additionally, the proposed changes in this NPRM may cause an initial increase in burden if more employees file a complaint with WHD to collect back wages under the overtime pay requirements. We anticipate this increased burden will wane over time as employers adjust to the new rule.

FLSA REFRESHER:

The FLSA applies to all enterprises that have employees engaged in commerce or in the production of goods for commerce and have an annual gross volume of sales made or business done of at least $500,000 (exclusive of excise taxes at the retail level that are separately stated); or are engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or individuals with intellectual disabilities who reside on the premises; a school for intellectually or physically disabled or gifted children; a preschool, elementary or secondary school, or an institution of higher education (without regard to whether such hospital, institution or school is public or private, or operated for profit or not); or are engaged in an activity of a public agency. See 29 U.S.C. 203(s).

The FLSA applies to all enterprises that have employees engaged in commerce or in the production of goods for commerce and have an annual gross volume of sales made or business done of at least $500,000.

There are two ways an employee may be covered by the provisions of the FLSA:

1.  Enterprise coverage, in which any employee of an enterprise covered by the FLSA is covered,
2.  Individual coverage, in which even employees of non-covered enterprises may be covered if they are engaged in interstate commerce or in the production of goods for commerce, or are employed in domestic service.

The FLSA requires employers to:

1. Pay employees who are covered and not exempt from the Act’s requirements not less than the Federal minimum wage for all hours worked and overtime premium pay at a rate of not less than one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek,
2.  Make, keep, and preserve records of the persons.