By Phillips Murrah Attorney Martin J. Lopez III
The Fair Labor Standards Act is the federal law regulating employee pay. Among other things, the FLSA covers minimum wages, maximum hours, overtime compensation and child labor.
The current federal minimum wage for most employees is $7.25 per hour. The FLSA requires employers to pay overtime, one-and-a-half times an employee’s regular hourly rate, when employees work more than 40 hours in a workweek. The FLSA also establishes categories of employees who are exempt from its overtime pay requirements, one of which is known as the white collar exemption. This includes executives, administrative employees, educational establishments, professional employees, computer employees and highly compensated employees.
Currently, exempt employees must be paid a salary of at least $455 per week. Being paid on a salary basis means that an employee must receive a full salary for any week in which work is performed, and they are not eligible for overtime. An exempt employee’s salary may not be reduced due to absences from work except in specific limited situations.
On Sept. 24, the U.S. Department of Labor announced its final rules for the revisions to the overtime regulations for the white collar exemptions. This change, effective Jan. 1, prospectively makes roughly 1.3 million American workers newly eligible for overtime pay. The rule updates the earnings thresholds necessary to exempt employees from the FLSA’s overtime pay requirements and allows employers to count a portion of certain bonuses and commissions toward meeting the salary level. These thresholds were last updated in 2004.
In the final rule, the Department of Labor is:
• Raising the standard salary level from the currently enforced weekly level of $455 to $684 (equivalent to $35,568 per year for a full-year worker).
• Raising the total annual compensation requirement for highly compensated employees from the currently enforced annual level of $100,000 to $107,432.
• Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.
• Revising the special salary levels for workers in U.S. territories and the motion picture industry.
In light of this, employers should review their employee records for any of its exempt workers making less than the new salary threshold level and determine what changes should be made.
Martin J. Lopez III is an attorney at the law firm of Phillips Murrah.