Federal Laws Addressing Overtime Pay and the Various Exemptions to Those Laws
The United States Department of Labor recently made significant changes to the regulations concerning overtime pay for certain employees, which will become effective on December 1, 2016. The article below, the first in a series of articles examining these changes, addresses the current federal laws addressing overtime pay and the various exemptions to those laws.
Overview of the Current Fair Labor Standards Act
The Fair Labor Standards Act (“FLSA”) requires that employees be paid at least one and one-half times their regular rate of pay for any hours they work beyond 40 in a workweek. However, provisions of the FLSA exempt certain employees from this requirement (i.e., excludes them from earning overtime pay) if the employee falls within established statutory exemptions to the overtime requirement. The exemptions generally apply to workers who earn at least $455.00/week (or $23,660.00/year), and whose job duties fall within one of the so called “White Collar Exemptions” for bona fide executive, administrative, and professional employees. The employee’s job title, or the mere fact that an employee is paid a salary (rather than an hourly wage) does not determine whether the employee will be entitled to earn overtime pay. Rather, for one of the White Collar Exemptions to apply, an employee’s specific job duties and salary must meet all of the applicable requirements provided in the Department of Labor’s regulations.
To determine whether an employee falls within one of the White Collar Exemptions, the employee must meet certain pre-requisites which take into account how the employee is paid (the “Salary Basis Test”), how much the employee earns (the “Salary Level Test”), and the employee’s job duties (the “Standard Duties Test”). Failure to meet any of the pre-requisites means that the employee will not fall into the White Collar Exemption and may be eligible for overtime pay.
The “Salary Basis” and Salary Level” Tests
The Salary Basis Test requires that an employee be paid on a salary basis that is not subject to reduction based on quality of work. If an employee is paid in another manner (i.e., hourly) then the employee does not fall within the White Collar Exemption. Until December 1, 2016, the Salary Level Test requires that an employee earn at least $455.00/week (or $23,660.00/year) to be eligible for the White Collar Exemption. This will increase on December 1, 2016 to $913.00/week (47,476.00/year).
The “Standard Duties” Test
The most difficult and amorphous pre-requisite is the Standard Duties Test. This pre-requisite requires that the specific employee’s primary job duties involve the kind of work associated with exempt executive, administrative, or professional employees.
Exempt “professional” employees must primarily perform work that either requires advanced knowledge in a field of science or learning, usually obtained through a degree, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
Exempt “administrative” employees must primarily perform non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Additionally, the job duties must include the exercise of discretion and independent judgment with respect to matters of significance.
Exempt “executive” employees must have the primary duty of managing an enterprise or managing a customarily recognized department of subdivision of an enterprise. Also, the employee must customarily and regularly direct the work of at least two other full-time employees or their equivalent (for example, one full-time and two half-time employees), and have the ability to hire or fire other employees (or give input concerning other employees’ hiring, firing, advancement, or promotion that is given particular weight).
Please read the second installment in our series titled Part II: Changes to the FLSA Regulations, which addresses changes that will become effective on December 1, 2016. If you have questions about the upcoming changes to the FLSA regulations, or about any other employment law issues, please contact Attorney Michael P. Doherty, Andrew M. Kepple or one of our other employment attorneys at 508 541-3000.