Controversial Overtime Rule Goes Into Effect December 1
| Publication year | 2016 |
| Pages | 0421 |
By Jenna M. Bedsole and Dena H. Sokolow
On May 18, 2016, the Department of Labor (DOL) announced new overtime regulations which were published in the Federal Register on May 23, 2016. It estimated 4.2 million workers will be affected by the new rules that go into effect as of December 1, 2016 - 60,000 in Alabama.1
A Little History
The Fair Labor Standards Act (FLSA), the federal wage law, was passed in 1938 and it requires employees to be paid at least the federal minimum wage (currently $7.25 per hour) and overtime for any time worked in excess of 40 hours in a workweek.2 Overtime is calculated at one and a half times the employee's regular rate of pay.3 In general, those businesses that have employees who are "engaged in commerce or in the production of goods for commerce" or whose employees handle, sell or otherwise work on goods that move in commerce" are subject to the FLSA if they also have $500,000 in annual gross volume in sales or business.4
The statute carves out a number of exemptions from the FLSA's minimum wage and overtime requirements. For example, Section 13(a)(1) of the FLSA exempts from minimum wage and overtime protection "any employee employed in a bona fide executive, administrative, or professional capacity . . . or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary [of the Department of Labor], subject to the provisions of [the Administrative Procedure Act] . . .)."5 These exemptions are sometimes referred to as the "white collar" exemptions. However, the act itself does not define what constitutes an executive, an administrator or a professional ("EAP"). The DOL through its regulations and the courts have been left to flesh out their meanings.
"Exemption" From Overtime
The DOL published its first regulations relating to the FLSA in October 1938. The regulations have been revised throughout the years but for the most part the "white collar" exemptions have been subject to a three-part test, namely:
a) How an Employee Is Paid-Salary Basis;
b) How Much an Employee Is Paid-Salary Level/Threshold; and
c) What Kind of Work Does the Employee Do-Job Duties Test
All three parts must be satisfied in order for the employee to be exempt from the FLSA. If an employee is exempt, the employee can work any number of hours per week without minimum wage or payment of overtime.
How an Employee is Paid-the Salary Basis Test
First, the employee must be paid a pre-determined amount, a fixed salary that cannot be reduced regardless of the numbers of hours worked or not worked. It is not dependent on the quality or amount of work.6 As early as 1940, the DOL published revised regulations which added the salary basis test.7
How Much an Employee Is Paid-Salary Level/Threshold
Second, the salary must meet a specific minimum threshold-in the year the FLSA was passed, the minimum was $30 per workweek for the administrative and executive ex-emptions.8 The salary threshold has changed over the years.
As noted below, in 1975, the salary threshold was set at $155 per week.9 On August 23, 2004, the DOL increased the salary threshold for the executive, administrative and professional (EAP) exemptions to $455 per week or $23,660 per year.
Many employers mistakenly believe that paying salary alone renders an employee exempt from the statute-that is simply not the case. The DOL has "long recognized the salary level test is the best single test of exempt status for white collar employees" as it is objective and forms a bright line between exempt versus non-exempt employees.10
| LONG TEST | ||||
| Date Enacted | Executive | Administrative | Professional | Short Test (all) |
| 1938 | $30.00 | $30.00 | ||
| 1940 | $30.00 | $50.00 | $50.00 | |
| 1949 | $55.00 | $75.00 | $75.00 | $100.00 |
| 1958 | $80.00 | $95.00 | $95.00 | $125.00 |
| 1963 | $100.00 | $100.00 | $115.00 | $150.00 |
| 1970 | $125.00 | $125.00 | $140.00 | $200.00 |
| 1975 | $155.00 | $155.00 | $170.00 | $250.00 |
| 2004 | STANDARD TEST $455 | |||
What Kind of Work Does the Employee Do-Job Duties Test
In 1966, the "long" and "short" duties tests were established.11 Under the "short" test, the employee had to have been paid at least $250-not including lodging, board or other facilities.12 The "long" test applied when the employee was paid less than $250 but more than $115 per week.13 Under both the "long" and "short" tests, the duties of the employee were evaluated; however, under the "long" test, because the employee was paid less, the duties received greater scrutiny. To pass muster under the "long" test, an exempt employee had to spend no more than 20 percent of his or her time (or 40 percent of his or her time in retail or service establishments) performing non-exempt work.14
The 2004 revisions replaced the "long" and "short" tests with the "duties test." The duties test remains in place today. Under the "duties test," the focus of the inquiry is on what the employee actually does to determine whether the employee is exempt from the overtime regulations. While job titles or descriptions are persuasive, they are not determinative.15 Further, to be exempt, the employee's primary duty (generally 50 percent or more of the work time) must be spent on exempt work.16
For example, to satisfy the executive duties test, an employee's primary duty must be the "management of the enterprise in which the employee is employed or of a customarily recognized department" and she must "customarily and regularly direct the work of two or more other employees."17 In addition, the executive must have "the actual authority to hire, fire or make decisions regarding any other change of employees' status, or her recommendations must be given 'particular weight.'"18
Likewise, for the administrative exemption, not only must the employer pay the individual a pre-determined amount equal to or greater than the salary threshold but the duties test requires the administrative employee to perform office or non-manual work "directly related to the management or general business operations of the employer or the employer's customers" and his primary duty must include "the exercise of discretion and independent judgment with respect to matters of significance."19
Again, the professional employee must be compensated on a salary at an amount not less than the salary threshold and the employee's primary duty must require "knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction" or requires "invention, imagination, originality or talent in a recognized field of artistic or...
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