How New Overtime Regulation Impacts You
To ensure that the intended overtime protections of the Fair Labor Standards Act (FLSA) are fully implemented, the Department of Labor has updated its regulations. Employers have until December 1, 2016 to comply with a new federal overtime standard that will drastically increase the number of workers who qualify for overtime pay of time-and-a-half. The new rule will impact approximately 4.2 million workers nationwide and 278,000 workers in New York State. The rule will put more money in the pockets of middle class workers, or give them more free time.
What is the Rule?
The rule will double the salary level for employees to be exempt from overtime pay of time-and-a-half, from $23,360.00 to $47,476.00, or $455.00 per week to $913.00 per week. This means that employees earning less than $47,476.00 will be eligible for overtime pay when they work more than 40 hours per week, in spite of being classified as a “salaried employee.” To comply with this rule, employers can either pay time-and-a-half for overtime worked, raise the salary of the employee to the new threshold amount, or limit the employee’s work week to 40 hours per week. The rule also automatically updates the salary threshold every 3 years to account for inflation.
There are limitations on how this new rule affects many employees. The increased threshold has no impact on workers paid hourly and workers with a normal routine work week of 40 or fewer hours.
This new rule may impact different employers in different ways. Public employers are not exempt from the rule, but the FLSA does have numerous provisions unique to state and local governments, including compensatory time (“comp time”). Municipalities have agreements with their employees which allow the employee to earn comp time instead of a cash payment for overtime hours. Such comp time arrangements must be established pursuant to an agreement prior to the performance of the work. The comp time must be given at a rate of one and one-half hours for each overtime hour worked. When the employer uses the comp time, it is paid at the regular rate of pay. Most state and local government employees can accrue up to 240 hours of comp time.
Some employers try to skirt the FLSA’s updated regulations by classifying their employees as independent contractors. Often times, the classification is improper. Misclassifying employees as independent contractors can lead to employees not receiving essential workplace protections such a minimum wage, overtime compensation, unemployment insurance, and worker’s compensation. Improper classification results in an uneven playing field for employers properly classifying their workers. FSLA violation penalties can be very costly.
The Department of Labor’s Wage and Hour Division (WHD) and many states recognize that the misclassification of employees is a growing and challenging trend. To combat the problem, the states have responded by passing legislation. The WHD has entered into memoranda of understanding with many of these states, along with the IRS. In addition, the FLSA has provided direction regarding the application of its own standard for determining who is an employee under the FLSA and who could be classified as an independent contractor. The Courts use the multi-factored “economic realities” test to determine whether a worker is an employee or an independent contractor under the FLSA. All of the factors must be considered and no one factor is determinative. The objective is to determine if the worker is economically dependent upon the employer, and therefore its employee, or is in business for her or himself, and is therefore an independent contractor.
The basic factors for the “economic realities” test are:
- the extent to which the work performed is an integral part of the employer’s business
- the worker’s opportunity for profit or less depending on his or her skill
- the extent of the relative investment of the employer and the worker
- whether the work performed requires special skills and initiative
- the permanency of the relationship
- and the degree of control exercised or retained by the employer. Courts may also consider additional factors depending upon the circumstances.
The new regulations promulgated by the FLSA provide important legal protections for workers. It is essential that employers follow the new regulations and do not attempt to bypass them in an effort to pay their employees lower salaries than required by law. Employers are cautioned that the WHD will investigate complaints from workers and bring successful enforcement applications against non-complying employers. Regardless of whether you are an employer or an employee, it is important that you know the law. An experienced labor attorney can help you navigate the new regulations as they pertain to your need.
For more information on this issue and other labor and employment law concerns, visit our website. We can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.