The federal law that guarantees fair hours and wages is the Fair Labor Standards Act (FLSA). The FLSA established the 40-hour week, the minimum wage, and the rules for overtime. It became law in 1938 after some employers exploited the circumstances of the Great Depression to impose dangerous conditions and long hours on workers. In 2016, more changes are coming to the rules about overtime, and small business owners in Florida should know that those changes will take effect on December 1.
In 2014, the White House ordered the Department of Labor (DOL) to simplify and modernize federal overtime regulations under the Fair Labor Standards Act so that the regulations are easier for workers and businesses to understand and apply. The Department of Labor has issued a “final rule” regarding overtime. The rule is designed to provide more income to middle class employees (or to give them more free time).
WHAT DOES THE NEW “FINAL” OVERTIME RULE DO?
Despite several impending legal challenges to the final rule by a number of states and business groups, small business owners in Florida should not postpone their plans to meet the December 1 compliance deadline for the new overtime rule. Postponing their plans could leave employers without enough time to address the changes they’ll need to make. Florida employers and business owners with questions or concerns regarding the final rule should promptly seek the advice of an experienced small business attorney. The final rule will go into effect December 1, and it will:
- raise the salary threshold for overtime eligibility from $455 per week to $913 per week
- automatically update the salary threshold every three years, based on wage growth
- enhance the protections for salaried workers already entitled to overtime
WHAT IS THE PURPOSE OF THE NEW “FINAL” OVERTIME RULE?
The new final rule updates the regulations for determining if a white collar salaried employee is exempt from the FLSA’s minimum wage and overtime rules. An employee is exempt if he or she is employed in a bona fide executive, administrative, or professional capacity, as those terms are defined by the Department of Labor. This is referred to as the “white collar” or “EAP” exemption from the FLSA. Unless specifically exempted, an employee covered by the FLSA must be paid for hours worked in excess of 40 in a workweek at a rate not less than 1.5 times his or her regular rate of pay. To be eligible for exemption, white collar employees usually must:
- be salaried, meaning that they are paid a predetermined and fixed salary
- be paid more than $913 per week under the new final rule
- perform primarily executive, administrative, or professional duties as defined by the DOL
Certain employees such as doctors, teachers, and lawyers are not subject. The Department of Labor’s regulations also provide an exemption for highly compensated employees who earn more than $134,004 annually. The current salary level for exemption – $455 a week, established back in 2004 – no longer helps to separate salaried white collar employees who should get overtime pay for working extra hours from those who should be exempt. The new final rule will also help to ensure that the regulations continue to appropriately separate the two categories of workers in the future.
To prevent the salary level requirements from again becoming outdated and useless in the future, the DOL has established a formula that automatically updates salary and compensation levels every three years. In addition, employers will now be able to count nondiscretionary bonuses and incentive payments including commissions to meet up to ten percent of the standard salary level, so long as those payments are made quarterly or more often.
The DOL’s new final rule also sets the standard salary level to qualify for overtime at the 40th percentile of earnings of full-time salaried workers in the nation’s lowest-wage census region, the South, rather than basing the standard salary level on national data. The DOL made this choice in response to concerns that the lower salaries paid in certain regions have not historically received adequate consideration.
On September 20, 2016, in two separate federal lawsuits, twenty-one states and a coalition of over fifty business groups and trade associations challenged the Department of Labor’s final overtime rule. Both lawsuits were filed in the Eastern District of Texas, and both charge that the DOL has exceeded its authority. Specifically, the pair of lawsuits challenge the DOL’s authority to:
- raise the minimum salary level for exempt executive, administrative, and professional employees
- raise the minimum annual compensation level for exempt highly compensated employees
- establish the mechanism to automatically update minimum salary and compensation levels every three years
In September, the House of Representatives actually voted to delay the implementation of the final rule for another six months. Michigan Representative Tim Walberg, who introduced the legislation, said the overtime rule “burdens hard-working small business owners” and “jeopardizes vital services for vulnerable Americans.” Oklahoma Senator James Lankford introduced a companion bill in the Senate, but the White House has announced that it will veto any legislation delaying implementation of the final rule.
Daytona Beach small business attorney Melody Lankford says, “The new overtime rule is scheduled to become effective December 1, 2016. Although the House of Representatives passed a bill on September 28 that would delay the effective date by six months, we have advised our business clients to be prepared to comply with the new rule beginning December 1. We are closely monitoring legislative developments for any changes.”
HOW MUCH WILL THE NEW “FINAL” OVERTIME RULE COST EMPLOYERS?
The DOL projects that adherence to the new final rule will cost employers approximately $295 million per year over the first ten years, including initial familiarization and adjustment expenses. The new rule will also impact employee retirement plans and their sponsors that are providing match contributions on employee deferrals or other employer contributions based on employee compensation levels. Joe DeSilva, the senior vice president and general manager of ADP Retirement Services, says, “I think the additional cost will be somewhat sizeable.”
Employers may consider creating more part-time positions so that they can avoid characterizing employees as full-timers to whom the new rule would apply. In some cases, this could violate the Employee Retirement Security Act (ERISA) protections against interference of benefits and thus potentially subject employers to lawsuits. Before an employer in central Florida takes any action in response to the DOL’s new final rule, consult an experienced Daytona Beach small business attorney to ensure that you’re in compliance with the law and that any action you take won’t generate lawsuits against you.
Employers who fail to pay legal wages can be fined or sued, and in some cases the costs are quite substantial. How will non-profits be impacted? While many nonprofit organizations may not be covered under the FLSA, some non-profits are likely to have some employees who are covered individually and are therefore entitled to the overtime protections guaranteed by the FLSA and the new final rule according to the DOL.