Wage and Hour Update: New Overtime Regulations Issued
On May 18, 2016, the U.S. Department of Labor issued its final regulations dramatically changing the standards for millions of American workers to qualify for overtime pay. The most important impact of the new regulations is that workers earning less than $47,476.00 ($913.00 per week) will automatically qualify for overtime pay for each hour or portion thereof over 40 hours worked in a single workweek. It is estimated that this new threshold will impact at least 4.2 million workers. It has been 12 years since the Department of Labor adjusted the salary threshold. Under the new regulations, the salary threshold levels will now automatically be updated every three years.
Although the Fair Labor Standards Act (“FLSA”) ensures a minimum wage (currently $7.25 at the Federal level; and $8.25 currently in the state of Illinois) for most employees that are covered by the FLSA, there are certain exemptions to this protection. Employees in certain bona fide Executive, Administrative or Professional positions may still not be entitled to overtime pay. In order for this to occur, there are three key tests that must be met: (1) the individual must be paid a predetermined, fixed salary amount that is not subject to fluctuation because of variations in the quality or quantity of work performed (the “Salary Basis” test); (2) The amount of the salary paid must meet the minimum salary threshold (just raised to $47,476.00 annually) (the “Salary Level Test”); and (3) The employees job duties must fit within certain narrowly defined parameters for executives, administrative or professional occupations (the “Duties Test”).
Other changes under the new regulations also raise the ceiling for highly compensated employees to be exempt from overtime pay. Previously, the threshold level had been set at $100,000.00. Under the new guidelines, this amount will now increase by almost 34% to a new level of $134,004.00. Also, for the first time, employers may take a credit of up to 10% of the standard salary level by including certain non-discretionary bonuses and incentive (commission payments).
The new overtime rules will become effective on December 1, 2016.
In the meantime, all employers should carefully consider the amount of hours that an employee actually works. Care should be given to review all policies and procedures requiring strict approval and permission to work over 40 hours per week. Mechanisms should be tightened to provide for accurately reporting of all time worked in order to assess how close an employee is to working over 40 hours per workweek. In today’s digital era, where employees are encouraged to constantly answer their cell phones or e-mail after working hours, all of that time spent will count towards the 40- hour cap.
The overtime changes are a reflection of several forces at work in the American economy. Since the salary threshold has not been raised in over 12 years, working families are falling further and further behind and often survive right on the edge of the poverty level. That must change. Secondly, the political environment in this election year has seen a major push at the state level to increase the minimum wage. The current push is for states to raise the minimum wage to over $15.00 per hour. Illinois has a minimum wage that is higher than the Federal rate (and in those instances where the state level is higher, employers must pay the higher minimum wage). The City of Chicago has gone to a $10.00 hour minimum wage. There are fierce ideological differences among the various political parties with regard to raising the overall minimum wage to $15.00. Therefore, the move to adjust the threshold salary levels is seen as a way around the political gridlock while accepting that the salary threshold must change to raise people out of the poverty level.
While the change in the overtime laws may be seen as a boon to employees, businesses are likely to pass on the cost of increased wages on to consumers through higher prices. We are beginning to see a trend among restaurants where owners are telling patrons not to tip their workers since they are now effectively earning higher wages. Another disturbing trend is manifesting itself in the fast food industry where workers are being replaced with self- serve automated kiosks. Finally, if workers are not allowed to work overtime, the pressure will greatly increase on the average employee to get more done within the 40-hour workweek or face performance or disciplinary actions from demanding employers. The new overtime laws, like most laws, are a mixed blessing.
With over 30 years’ experience in advising employees and businesses on labor and employment issues, let Boznos employment attorneys work with you to ensure you are ready to meet the challenges posed by the ever changing employment law landscape. Call Bill Boznos today at (630) 375-1958 or contact us through our website at www.boznoslawoffice.com
View the US Department of Labor’s recent video:
Secretary Tom Perez explains the new overtime rule and how it helps ensure for workers a fair day’s pay for hard day’s work.
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