Attorney Matt Smith Explains New Overtime Regulations Under The Fair Labor Standards Act

Matthew Smith
January 4, 2017

On May 18, 2016, the Department of Labor released the “Final Rule” of an update to its overtime regulations issued under the Fair Labor Standards Act (“FLSA”). The Final Rule makes significant changes to the regulation’s “salary test” , which is used to determine whether an employee is exempt or non-exempt from the payment of overtime.

Under the FLSA, certain Executive, Administrative and Professional positions (“EAP exemptions”) are exempt from the payment of overtime for hours that exceed 40 hours in a workweek. To be exempt, each of these positions must meet a “duties test” and a “salary test”. The new regulation, which will take effect on December 1, 2016, focuses on increasing the threshold level under the “salary test” for an employee to be exempt specifically under the exemptions for Executive, Administrative, and Professional positions. The “duties test” for these positions has not changed. This article summarizes the substantive changes in the law, which will affect over 55,000 individuals in Kentucky and may impact your business. This Final Rule makes significant changes to the overtime laws. Even though there are significant changes under the Final Rule, there are methods of compliance that can be utilized to have the least impact on your business. To learn more about reducing the impact of these changes on your business, please contact us.

Existing Duties Test

While FLSA recognizes five distinct exemptions to the overtime provisions, this Final Rule sought to address only three: Executive, Administrative, and Professional positions. As previously mentioned, the duties test for the EAP positions has remained unchanged.

New Salary Test

For the EAP positions, the Final Rule will increase the salary threshold to $47,476 annually ($913 per week), representing an increase just slightly more than 100% from the current threshold of $23,660 annually ($455 per week). The Final Rule also establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Nondiscretionary Bonuses, Commissions, Etc…

Historically, the Department of Labor has assessed compliance with the salary level by looking only at actual salary or fee payments made to the employees, excluding bonus payments of any kind. While employers are allowed to pay additional compensation beyond the required salary in the form of bonuses, those payments have never counted towards the minimum salary level. The exclusion of such bonuses in the minimum salary level calculation was the result of a concern that permitting such bonus payments that frequently correlate to the quantity or quality of work performed could undermine the utility of the salary basis. The Final Rule will permit nondiscriminatory bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard weekly salary level test for the first time, provided that these forms of compensation are paid at least quarterly.

For more information on how Ziegler & Schneider, PSC can help you and your business maintain compliance with these NEW Final Rule Regulations, please contact Matt Smith at (859) 426-1300.

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