Employer Overtime Policies in Light of Fair Labor Standards Act Changes

By Adam J. Shafran, Esq.

Companies in all industries, large and small, should prepare themselves now for upcoming changes to the Fair Labor Standards Act (“FLSA”), the federal law governing overtime wages. In March of this year, President Obama issued a memorandum to the United States Department of Labor (“DOL”) mandating the DOL to update its regulations governing employee overtime eligibility.

Most individuals in the field believe that the DOL will make two major changes to its overtime regulations. First, the minimum salary threshold for the overtime exemption will be significantly raised from $455 a week; meaning that in order to not be required to pay an employee overtime wages, the employee’s weekly salary must be at or above the DOL’s minimum threshold level. Second, the DOL may adopt strict “division of labor” test that will require employers to prove that their salaried employees have spent at least 50 percent of their time performing “executive, administrative or professional” duties in order to qualify under the executive, administrative or professional overtime exemption. Currently, the determination of whether an employee is exempt under the FLSA is made according to the “primary duty” test. This test looks beyond the actual time spent performing specific tasks, and analyzes all relevant factors pertaining to the employee’s background, qualifications and terms of employment.

By way of example, under the new “division of labor” test, if a store manager is responsible for hiring, firing and evaluating employees, but spends less than 50% of his or her time doing so, and spends the rest of his or her time performing customer service responsibilities, the employer would not be able to claim a FLSA exemption, and would be required to pay the employee overtime wages.

The easiest way for employers to handle these anticipated changes are for the employer to: 1) give the employee a raise to bring his or her weekly salary above the minimum threshold level to the extent that the raise is less than what the employer would otherwise have to pay in overtime wages if the employee was not given a raise; and 2) take steps to ensure that employee is spending at least 50% of his or her time performing functions that bring the employee within the relevant FLSA overtime exemption.

Ultimately, the FLSA and the DOL’s regulations on the subject can be confusing and are often changing. A Rudolph Friedmann attorney can help you navigate these waters, particularly if you have many employees that you believe are exempt under the FLSA.