As directed by
Pres. Obama, the U.S. Department of Labor published new regulations in May
regarding overtime pay under the Fair Labor Standards Act (FLSA) to be
effective December 1, 2016. The FLSA
requires employers to pay most employees at least the Federal minimum wage and
to pay for overtime, which is the number of hours worked in excess of 40 in a
workweek, paid at a rate of 1 ½ times the regular hourly rate. Federal and Utah minimum wage is currently
$7.25 per hour and Utah follows the FLSA overtime rules. Exemptions from overtime pay is permitted for
employees who work in certain administrative, professional, or executive jobs. An exemption is also provided for highly
compensated employees not working in one of these areas.
A minimum
“salary-level” test must be met for employees working in executive,
administrative, or professional positions to be considered exempt from overtime
pay. On December 1, 2016, the minimum
increases to $913 per week ($22.825/hour or $47,476/year) up from the current
$455 per week ($11.375/hour or $23,660/year).
The regulations provide for automatic increases to these amounts every
three years, the first increase beginning January 1, 2020.
For the highly
compensated person not working in one of the three areas, the current
compensation level of $100,000 per year is increased on December 1, 2016 to the
90th percentile of earnings for all full-time salaried employees
which is $134,004. This amount will also
be adjusted every three years.
Employers should
review their employee classifications to ensure that exempt employees are
properly classified. Be sure that job
descriptions accurately reflect the employees’ duties. Exempt employees earning less than the new annual compensation of
$47,476 will need to receive overtime pay starting December 1, 2016. The regulations permit nondiscretionary
bonuses, incentives, and commissions to satisfy up to 10% of the new standard
salary level, but these payments must be made quarterly. If an exempt employee works overtime, and
earns close to the new salary level, it may be less expensive to give the
employee a raise to meet the new exemption standard instead of making overtime
payments, or else prohibit the working of overtime. Adjusting an employee’s compensation to meet
the new standard introduces several other complications to be considered, such
as considering whether raises must be given other employees to treat them
fairly, and being cognizant of any equal pay issues between men and women
having similar duties.
More information
can be found on the DOL website here.
Update
On November 22,
2016, a federal judge in Texas blocked implementation of the new overtime rules
pending a court decision on the legal challenge against the rules. Several business groups and 21 states
challenged the legality of the rules issued by the DOL. While welcome news to employers, it comes
very late and employers may have already discussed pay increases with employees
which will be very difficult to take back.
More information can be found here.
