Overtime Rules & Regulations
Effective December 1, 2016: The United States Department of Labor Wage and Hour Division is raising the salary overtime exemption pay rate from a minimum of $455 per week ($23,660 per year) to $913 per week ($47,476 per year). Basically, for an employee to be salary and exempt from overtime pay, they have to earn at least $913 per week in salary or a combination of salary and nondiscretionary bonuses and incentive payments (including commissions). These nondiscretionary bonuses can be used to satisfy up to 10% of the standard salary level but must be paid on a regular basis, at least quarterly. Nondiscretionary bonuses are not to be confused with discretionary bonuses that are awarded at the sole discretion of the owner. Nondiscretionary bonuses are forms of payments promised to employees to induce them to work more efficiently or remain with the company.
Employer contributions towards employee benefits, retirement plans, etc….do not count toward the $913 per week salary overtime exemption.
We have included the DOL Fact Sheet that goes into much greater detail along with some of the frequently asked questions that seemed relevant to us. As this information and other pertinent data can also be found at: http://www.dol.gov/whd/overtime/final2016
What determines if an employee falls within one of the white collar exemptions?
To qualify for exemption, a white collar employee generally must:
- Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- Be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- Primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test.
Must employees earning below the new level be converted to hourly pay?
No. Nothing in the FLSA or in the regulations governing the white collar exemptions requires employers to pay overtime-eligible employees on an hourly basis. There are millions of salaried employees (white and blue collar alike) who are legally entitled to overtime pay under the current regulations.
May employers use bonuses to satisfy part of the new standard salary level test?
Yes. The Department is changing the regulations to allow nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability (e.g. a bonus based on the specified percentage of the profits generated by a business in the prior quarter). The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount attributable toward the EAP standard salary level is capped at 10 percent of the required salary amount.
For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on a quarterly or more frequent basis.
What’s the difference between a discretionary bonus and a nondiscretionary bonus?
Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company. Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula.
By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and not in accordance with any preannounced standards. An example would be an unannounced bonus or spontaneous reward for a specific act.
Just recently, the Department of Labor’s Wage and Hour Division contacted a new client of ours after that office received a complaint from a former employee of the client. The employee alleged that the client refused to pay overtime wages to employees that worked over 40 hours in a one-week period of time. The client, along with a representative from ELM Staffing, met with the Investigator to determine if there was in fact a violation. After an extensive review, the employer was found to have violated overtime regulations. As a result, the employer must pay back wages to all employees (not just the one filing the complaint) for the past two years. According to the investigator, since this employer cooperated completely and showed a true misunderstanding of the law they were spared a much harsher penalty. Employers who willfully or repeatedly violate the minimum wage or overtime requirements are subject to a civil money penalty of up to $1,000.00 for each violation (each violation means every time an employee was supposed to have been paid overtime x the number of employees affected). In this particular situation, the employer did not feel that he owed overtime since the employee elected to work over the 40 hours. This is a retail establishment and often the employees would swap shifts with each other. Even though the owner did not schedule them for more than 40 hours in a week; they worked more than 40 hours and therefore were eligible. It is the employer’s responsibility to make sure that no hourly employee works more than 40 hours in a one-week period of time.
The following is a list of regulations and areas of concern:
- Work Week = a period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week established by the employer.
- Bi-Weekly, Semi-Monthly, & Monthly Payrolls – The 40-hour workweek rule still applies. If an employee works more than 40 hours in any 1-week period, that employee is eligible for overtime. For example: John Smith with ABC company is paid every 2 weeks. He worked 80 hours during that 2 weeks. However, John worked 50 hours during week 1 and 30 hours during week 2. John must be paid 70 hours at regular pay and 10 hours overtime.
- Exemptions for salaried employees
- Must earn $23,660 year or $455 per week in salary
- The employee must have some type of managerial duty (must direct the work of 2 or more other full-time employees)
- The employee must have the right to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status must be given particular weight
- Some professions may be excluded from overtime: administrative (non-manual work that is directly related to the management or business operations that require the employee to use discretion and independent judgement), creative (work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor), computer (computer systems analyst, computer programmer, software engineer, etc…) outside sales (must be primarily engaged away from the employer’s place of business)
- Who is covered – all employees of businesses whose annual gross volume of sales made or business done is not less than $500,000 (This is total for the business not for each location of the business).
- Hours Worked – includes all time that an employee must be on duty, or on the employer’s premises or at any other prescribed place of work. Also included is any additional time the employee is allowed to work.
- Meal Periods, Break Periods, and On-Call Time – Employers are not required to give employees meal or rest periods. However, the FLSA does regulate when employees must be paid for these periods. The basic rule is that a meal or break that is less than 20 minutes may not be deducted when computing total work time. The meal or break period may not be deducted if the employee has work duties during that time. Otherwise, this time may be deducted from the hours worked by an employee for federal minimum wage and overtime purposes. An employee who is on call must be paid for these hours if restrictions are placed on the personal freedom of the employee. If the employee is not allowed to use the time as he/she chooses, the employee must be paid for on-call time. An employee may be paid a different rate of pay for hours spent on call, as long as the employee’s pay does not fall below the minimum wage.
- Vacation Holiday & Sick Pay – these are not included in the calculation of employee’s regular rate of pay for purposes of calculating overtime.
For anybody who is still awake out there, I hope this provides some helpful information. I tried to summarize as much as possible. However, The Department of Labor is not exactly known for its brevity. If you have any questions or require any additional information please contact either Joe Collins or Dea Allain at (251) 470-0700.