Changes coming to overtime rules

The Fair Labor Standards Act (“FLSA”) is the federal law that establishes certain employment standards for both private and government employers, such as minimum wage and overtime rules.  The law classifies workers as  either “exempt” or “nonexempt.”  Most employees are “nonexempt,” which means they must be paid at least the federal minimum wage rate (currently $7.25 per hour), plus time and one-half the regular rate of pay for hours worked over 40 in a workweek.  However, some employees, such as certain executives, managers, and sales employees, are considered “exempt,” which means they can be paid a set salary, regardless of the number of hours they work in a given workweek.  Currently, “exempt” employees must be paid a salary of at least $455 per week, or $23,660 annually.  However, the Department of Labor recently moved to change that threshold.  According to the rule change, as of December 1, 2016, the minimum salary for “nonexempt” employees will increase to $913 per week, or $47,476.

What makes an employee exempt?

Section 13(a)(1) of the FLSA states that bonafide executive, administrative, professional, and outside sales employees, as well as certain computer employees, are exempt from overtime laws.  However, an employee’s title does not dictate whether an employee is exempt.  Rather, employees are subject to certain tests that determine whether or not they meet the requirements of an exempt employee.  Each employee classification has a separate set of standards that measure whether or not the employee qualifies.  For instance, in addition to the minimum salary level, an executive is only exempt if she manages the business enterprise or a recognized department or subdivision of the enterprise, supervises and directs the work of at least 2 full time employees, and has the power to hire and fire employees, or at least her recommendations are given particular weight as to the same; while an outside sales employee’s primary duties must be making sales or obtaining orders or contracts, and she must be regularly engaged away from the employer’s primary place of business.  The Department of Labor provides a more complete explanation of the tests to determine whether an employee is exempt.

How will these changes effect the workplace?

Naturally, there are differing views about how these changes will effect Americans.  Some argue that this is a win for workers, because it will provide a long overdue boost in salary to many employees who work long hours and are not eligible for overtime, or, in the alternative, will cut down on the hours they have to work for less than satisfactory wages.  Others argue that it is a blow to small businesses, as it may be difficult to raise prices to cover higher costs without losing customers, and that it is yet another government regulation that makes running a small business more difficult.  Critics of the new rule also claim that it will turn millions of professionals into clock-punchers, as they will have to begin logging and recording their hours.  However, affected employees may feel that logging their hours is preferable to not earning a fair wage for the time they put into a job.  Regardless, there seem to be pros and cons to the change in the rule depending on your perspective, whether you are an employee or a business owner, but the overall impact to society at large remains to be seen.