New rules recently published by the U.S. Department of Labor have created new criteria for payment of wages, including overtime pay, to employees based upon the type and quality of work performed. Employees fall into two categories under the act, exempt employees and non-exempt employees, and there are three basic tests to determine whether an employee is exempt from the over-time requirements of the act. These tests are the:
- Salary Basis Test
- Salary Level Test
- The Duties Test
Below you will find a Client Up-Date that should provide useful information in this area.
New rules recently went into effect regarding when an employer must pay overtime for hours worked in excess of 40 hours per week. These new rules issued by the Wage and Hour Division of the United States Department of Labor (“DOL”) amended the terms of the Fair Labor Standards Act (“FLSA”). Under the FLSA employers are generally required to pay their employees at least the current federal minimum wage of $5.15 an hour. In addition, employers are required to pay overtime wages at the rate of one and one-half times the employee’s regular rate of pay for hours worked over 40 in any given work week. An employer, however, need not observe these requirements with respect to employees working in certain exempt categories. These new regulations drastically alter these exemptions and will require virtually every employer to review their payroll policies and procedures to ensure compliance.
Bona Fide Executive, Administrative, and Professional Employees Are Exempt As “White Collar Employees”
Employees fall into two categories under the FLSA (i.e. exempt employees and non-exempt employees). There are three basic tests that the DOL uses in determining whether an employee is exempt or non-exempt from the overtime requirements of the FLSA. These tests are (1) the salary basis test, (2) the salary level test, and (3) the duties test.
Salary Basis Test
To be exempt from the overtime requirement, workers must be paid a set salary and not an hourly wage. Generally, this test will remain the same in that exempt employees will still be required to be paid a salary rather than an hourly wage. The new regulations, however, permit some new deductions that may be taken from a salaried employee without destroying the salary basis of payment. For example, certain limited deductions from pay may be made for certain disciplinary suspensions.
Salary Level Test
The salary level test provides a preliminary determination of whether a job is non-exempt based on the job’s compensation. Generally, in order to be exempt, executive, administrative, and professional employees must be paid a salary at rate not less than $455.00 per week (i.e. $23,660.00 per year) or $27.63 per hour if the employee is a computer professional. This is an increase from $155.00 per week (i.e. $8,060.00 per year). Conversely, anyone paid less than $455.00 per week will automatically be presumed to be non-exempt. In addition, any employee paid over $100,000.00 per year will be considered highly compensated and will be deemed exempt if they customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee as described below.
The specific duties tests establishes whether an employee is an exempt employee under the FLSA based upon the type of work an employee performs. The revised duties test expands the types of exempt duties as compared to the previous version and now includes six types of exempt duties:
Learned Professional (including Teachers, Lawyers, and Doctors);
Outside Sales; and
The revised duties tests attempt to provide guidance on who is considered a “professional” and is therefore not entitled to overtime. Despite this attempt at clarification, the new duties tests will still require interpretation on the part of the courts and human resource professionals. In practice, there is often a fine line between a “skilled trades person” who is entitled to overtime and a “professional” who is not entitled to overtime.
The failure by an employer to comply with these new regulations can subject the employer to claims of back pay, multiple damages, and attorney’s fees. These types of lawsuits have become common in the litigation arena. Accordingly, employers should take the time to review their payroll practices and policies to ensure compliance with these new regulations. Should you have any questions on how the new regulations effect your company, please contact any member of Goldman & Pease.
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