What’s all the Hoopla about the Department of Labor’s (DOL) Overtime Rule Change

What’s all the Hoopla about the Department of Labor’s (DOL) Overtime Rule Change


Written by:   Rosmarie Hill, Labor and Employment Chair, Chambliss Law

What’s All the Hoopla about the Department of Labor’s (DOL) Overtime Rule Changes?

The changes in the wage laws discussed in this post are important to all employers, but are crucial to technology companies, particularly tech startups. Why? Because many, if not most, computer-related employees are misclassified under the wage laws discussed below.

What do you need to know about these changes? Plenty, but a bit of background first:

The Fair Labor Standards Act (FLSA) is the federal law that controls, among other things, overtime (OT) pay to employees. Almost all companies in the U.S. are subject to this law. Very basically, the FLSA requires that employers pay employees 1.5 hours of OT wages for every hour over 40 worked in a workweek.

This law has been around for a long time, and effective December 1, 2016, the criteria for when employers must pay OT wages changes. Employers who don’t comply with the law and its changes are in for a world of grief.

So, how do you know if you have to pay an employee OT wages?

You should start out assuming that all your employees are entitled to OT pay (known as “nonexempt” employees because they are not exempt from the overtime pay requirement).

BUT, some employees ARE exempt from the OT pay requirement – you never have to pay them for OT hours. Misclassifying employees as exempt is the biggest mistake companies make under the FLSA– a mistake the DOL loves, and private plaintiffs’ lawyers adore. Misclassifying employees as exempt from OT pay invites DOL investigations, large fines, and lawsuits. Spending up-front time trying to prevent that particular fun is crucial.

For an employee to be properly classified as exempt from OT, all 3 steps of a 3-step test must be met:

  1. Employee must be paid a predetermined fixed salary not generally subject to reduction regardless of the number of hours they work.
  2. The employee must be paid a minimum threshold salary of $455/week or $23,660/year. As of December 1, 2016, the changes to the FLSA raise this threshold to $913/week or $47,476/year– this is the basic FLSA change that concerns everyone, and it should. Do the math for your company, and you’ll understand why:

Any employee paid less than $47,476 as of December 1 is entitled to OT pay regardless of their job or duties.

  1. The employee’s job must meet one of the so-called “white collar” exemptions. There are administrative, professional, executive, outside sales, and computer white collar exemptions. These exemptions are too complex to detail here, but they are crucial in properly classifying exempt employees. Job titles don’t matter; how “important” the employee is doesn’t matter – all that matters is whether they meet all the criteria for the white collar exemption.

Remember that all three of these criteria must be met for an employee to be exempt from OT.

If you’re worried now, let me make it a little worse. The FLSA is very complex. Please become familiar with its requirements and the looming changes. Sooner is way better than later because the feds have increased the number of DOL investigators, are raring to start investigating YOUR COMPANY, and every employer should assume that any disgruntled or terminated employee can most easily find a plaintiff’s lawyer who will be delighted to sue you.

Bottom line: be informed and proactive. It will most certainly benefit you and your team.

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