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On March 7, 2019, the U.S. Department of Labor (DOL) issued proposed rules that would update the salary threshold for the Fair Labor Standard Act’s (FLSA) so-called “white collar” or “EAP” exemptions from overtime. The importance of this issue for employers is tied to the fact that an employee must be paid on a salary basis at or above the DOL’s specified minimum weekly salary level in order to be exempt from the FLSA’s overtime pay requirements.  

What Changes

Currently, employees paid a weekly salary below $455 per week ($23,660 per year) are deemed non-exempt and must be paid overtime for all hours worked over 40 per week.

Editor's note: A federal district court has granted a preliminary injunction blocking the overtime rule from taking effect December 1, 2016.

The U.S. Department of Labor will today unveil new regulations effectuating significant changes to the payment of employee overtime under the federal Fair Labor Standards Act (FLSA). The new rule will raise the salary exemption threshold for overtime pay under the FLSA from its current rate of $23, 660 a year to  $47,476 annually. Also raised under the new rule will be the total annual compensation level above which highly compensated white collar workers will be ineligible for overtime from the current $100,000 to $134,004 a year. The adjustments in the salary exemption thresholds will be the first since 2004 and only the third in the last four decades. The DOL estimates that the new rule will result in overtime eligibility for an additional 4.2 million additional workers nationwide.

The overtime salary exemption thresholds will be subject to automatic adjustment every three years, beginning on January 1, 2020, to raise the threshold to match the 40th percentile of full-time salaried workers in the lowest-wage Census Region. The new rule is set to go into effect on December 1, 2016.

You can view the the DOL's overview and summary of the final rule here.

The Fair Labor Standards Act requires employers to pay overtime to employees who work more than forty hours in a given week.  The Act provides several exceptions or “exemptions” to the forty hour rule.  If an employee falls under one of these exemptions, they are not entitled to overtime compensation.

businessman checking inventory

One exemption that is commonly used by employers and which has become the subject of recent debate is the “executive exemption”.  An employee falls under the executive exemption and is not entitled to overtime when he or she is an employee employed in a bona fide executive capacity. 

Under the FLSA and its associated regulations, an employee qualifies under the executive exemption when the following criteria are met:

  • The employee is compensated on a salary basis at a rate not less than $455 per week
  • The employee’s primary duty is management of the enterprise, department or subdivision
  • The employee customarily and regularly directs the work of two or more employees
  • The employee has the authority to hire or fire other employees or their suggestions as to hiring, firing, advancement or promotion or any other change in status are given particular weight 

On February 24, Mama's Pizzeria and Restaurant of Copiague, New York entered into a settlement with the Department of Labor.  In the settlement, Mama's agreed to pay $780,000 in minimum wage and overtime compensation to 40 employees. Pizza.jpg 

Mama's was charged with paying employees wages less than the minimum wage and requiring employees to work more than 40 hours per week without paying overtime.  Mama's also failed to keep accurate records of wages paid and hours worked by employees.

This case serves as a warning and opportunity for employers to review who is entitled to overtime and what records must be maintained by a business.

Virginia businesses follow the Fair Labor Standards Act ("FLSA") with regards to overtime and minimum wage standards.  The FLSA specifies that employees required to work more than 40 hours in a week are entitled to overtime at a rate no less than 1.5 times the normal hourly rate. Additionally, certain employees are exempt and not entitled to overtime.