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Department of Labor Proposes Raising Overtime Salary Exemption

Do any of your white collar workers make less than $50,440 a year?  

If yes, you may soon be required to pay these employees time-and-a-half for any time that they work beyond 40 hours each week.

In July, the Department of Labor ("DOL") proposed a new rule that will raise the salary threshold for exempting white collar employees from the federal overtime requirements.  Currently, employers do not have to pay overtime to certain white collar employees that make more than $23,660 a year.  Under the DOL's proposed rule, employers may only exempt these employees if they are making more than $50,440 a year.

The DOL's proposed rule will be implemented pursuant to the Fair Labor Standards Act ("FLSA").  The FLSA, which was signed into law by President Roosevelt in 1938, mandates that employees be paid time-and-a-half overtime pay for any time that exceeds 40 hours in a workweek.  In issuing this proposed rule, the DOL claimed that the exemption's salary threshold has not been significantly updated in decades.

Requirement for Claiming the Exemption

Falling under the salary threshold is not the only requirement for claiming the exemption.  The following DOL tests must also be met:  1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; 2) the amount of salary paid must meet a minimum specified amount; and 3) the employee's job duties must primarily involve executive, administrative or professional duties.  Manual laborers, or "blue collar" workers, do not fall within this exemption.

This rule is likely to have a significant impact on employers.  Many businesses have mid-or-lower level managers, who make less than $50,440 and work more than 40 hours each week.  For example, thanks to the introduction of smartphones into the workplace, more employees find themselves reading and sending emails long after they have left the office.  This time is working time and, if this work exceeds 40 hours in one week, the employer will have to pay the employee time-and-a-half for reading and sending these emails.

What Should Employers Do?

Employers should start thinking now about how to comply with this rule.  
1.    Pay the overtime.  Employers can convert employees to hourly workers and begin to keep track of the hours worked by white collar workers making less than $50,440 a year and pay time-and-a-half for any time worked over 40 hours in one week.

2.    Recalculate employee salaries.  If you know that an employee is going to be working a set number of overtime hours each week, you can calculate this total amount of time-and-a-half pay and recalculate the employee's salary to account for this overtime pay.

3.    Implement controls to limit overtime.  As noted above, technology has made it easier for employees to work after leaving the office, such as editing documents remotely or sending emails via a smartphone.  As a result, employers may take proactive steps to limit employees' virtual access to the office, such as shutting down email servers, banning staff from checking email outside of the office or instructing employees not to download email to personal devices.

As mentioned, the DOL published notice regarding this proposed rule in July.  The DOL accepted comments on the proposed rule until September 4, 2015.  After the comments period, the DOL will take some time to review the comments before issuing its final rule.  Expect the final rule to go into effect in early to mid-2016.  When the final rule becomes effective, the DOL estimates that this rule will extend overtime protections to approximately 5 million workers and provide a $1.5-billion raise for workers in the first year.

Before the rule goes into effect, if you have questions about compliance or about your FLSA obligations in general, contact a member of MacDonald Illig's Labor and Employment Practice Group at 814/870-7702.