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Changes to Federal Overtime Rules Will Affect Millions

By David L. Walker, Jr.

Published in the August, 2016 issue of the Cherokee Tribune

On May 18, 2016, the U.S. Department of Labor ("DOL"), under the direction of the Obama Administration, announced dramatic changes to its regulation of the employer and employee relationship. Regardless of one's ideological opinion of these new mandates, the newly introduced government intervention will necessarily pose real and present consequences for many employers and employees.

The Fair Labor Standards Act ("FLSA") was originally introduced in 1938, and currently any business: (i) that has more than 2 employees and more than $500,000.00 in annual revenue, or (ii) is engaged in "interstate commerce", is subject to DOL mandates instituted under the Act. Effectively, the definition of "interstate commerce" has been expanded by the federal courts to include virtually any business activity in the U.S.

Since the FLSA was enacted, it has been utilized as a vehicle for the Federal DOL to create regulations regarding minimum wages, weekly work hours, and other facets of the relationship between employees and employers. While most people have a general familiarity with the "minimum wage" and "overtime" rules for hourly wage earners, less are familiar with the regulations that affect "salaried" employees. Nonetheless, as a consequence of these new government mandates, it is important that business owners and managers, human resource managers, and salaried employees take the time to develop a full understanding of the impact of these new changes.

Beginning on December 1, 2016, any salaried employee who is paid less than $913.00 per week ($47,476.00 annually) will no longer be exempt from entitlement to overtime pay for work in excess of 40 hours per week. Given that the overtime exemption was previously extended to employees making $455.00 per week ($23,600.00 annually), studies estimate that on December 1, over 4 million salaried employees will become eligible for overtime pay – overnight. While the new regulations have been touted as an immediate pay increase for affected employees, some analysts caution that – much like the unforeseen consequences of the Affordable Care Act (Obamacare) – the unilateral decrease in exemptions may instead result in a reduction in the amount of income, hours, and advancement opportunities available to salaried employees who are currently exempt.

It must be noted that the amount of salary paid to an employee is only 1 of 2 tests for determining whether a salaried employee is exempt from overtime regulations. In addition, after December 1, employees making more than $47,476.00 per year will only be exempt if they also qualify under one of the following exemptions: (i) executive duties (such as management and supervisory duties and the ability to participate in decisions regarding the hiring, firing, or advancement of other employees); (ii) administrative duties (consisting of non-manual and independent work directly relating to the business operations of the employer); (iii) outside sales (in which the employee is regularly engaged in sales activities away from the employer's place of business); or (iv) "highly compensated employees" (meaning, those employees who have managerial duties and who earn more than $134,004.00 per year). Interestingly, the federal government also decreed that salaried attorneys, doctors, and teachers are exempt from the foregoing minimum wage protections.

While it is impossible to detail the nuances of these new regulations within the confines of this rather short column, the effect that these new regulations will have on small, medium, and large businesses and their employees cannot be overstated. Employers who wait until December 1 to address these new changes will suffer substantially increased liability and risk. In recent years there has been a dramatic increase in FLSA-related lawsuits by employees against employers as plaintiffs' lawyers have increased their advertising and efforts to expand this area of litigation. Moreover, if a business is found to have violated the FLSA, the penalties can be severe. Consequently, an employer who fails to adopt adequate strategies to ensure that it is in compliance with the new regulations may likely find itself an unwitting defendant in such a suit.

These new regulations present considerations for employees as well. As employers endeavor to respond to these new regulations by implementing lawful measures (such as requiring employees to "clock-in" and "clock-out", converting employees from salary to hourly status, reducing employee hours and limiting their ability to perform work outside of the office, as well as any number of related measures), in an effort to reduce their exposure and ensure compliance with the new rules, employees may find themselves unhappy with the new federal regulations. In order to limit the resulting strain, employers and employees should communicate in advance of the December 1 deadline to ensure that each has a full understanding of what new measures might be implemented to address the changes.

Employers and employees alike are advised to take the time to investigate the details of these new regulations, consult with their professional advisors and human resources departments, and develop a full understanding of how they may be affected by these new directives.

David L. Walker, Jr. is a partner with Flint, Connolly & Walker, LLP. He focuses his legal practice to collaborate with business owners, mid-sized and closely held corporations, as well as real estate owners, developers, and contractors. David has a depth of knowledge in the areas of construction law, contracts, probate law and estate administration, and various matters related to the business operations of employers and business owners.

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