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Frequently Asked Questions About the New FLSA Overtime Rule

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The information below is based on federal law requirements; state laws may vary. Additional inquiries may be directed to Carrie Cox using her contact information at the bottom of the page.

Common Questions

If we have an employee who is salaried and makes less than $47,476 per year, we need to pay them overtime, correct?

Correct. If they make less than $47,476 annually, they would not meet the salary level requirement to be classified as exempt from overtime and would receive overtime pay for any hours worked more than 40 in a week.

Does the exempt/nonexempt distinction have to be connected to employees' status (e.g., manager or staff)? Could a manager still be categorized as nonexempt?

Job titles or status do not denote exempt or nonexempt classification. It is possible that an employee with a “manager” title would not meet the salary-level requirement or the duties test requirements and would therefore be classified as nonexempt.

Could the threshold change result in demotions? Won’t this hurt employee morale?

It is certainly possible that some employees may view a change from exempt to nonexempt status as a demotion. However, others may view this positively, as they may be paid more for working overtime. Employers should think carefully about how they present the changes to their employees to help mitigate any effects to employee morale.

Can the new rule be implemented early? Is there value in doing so?

You may implement prior to the Dec. 1 compliance deadline. The value to doing so may be in additional pay to employees, but that will depend upon the implementation strategies you choose. Whether employees will earn more or employers will make changes to pay levels to pay approximately the same annual amounts will again depend upon the implementation strategies you choose.

What are the rules for highly compensated employees?

Highly Compensated Employees (HCEs) must meet the higher minimum annual salary level and perform at least one of the duties outlined in the lower salary level exemptions (Executive, Administrative or Professional [EAP]). It’s possible that an employee would not meet all of the duties requirements for one of the EAP exemptions and that he or she is highly compensated. This allows for the employee to still be exempt.

How will the new rule affect employers with flex-time policies?

Employers may still utilize flex-time policies for salaried employees. If employees are nonexempt, they must be paid for any hours worked more than 40 in a week, so it’s important to have timekeeping systems in place to accurately track any nonexempt employee’s hours.

If employees choose to work through their lunch hour, will that hour be subject to overtime pay?

It depends on how they are classified. If salaried employees meet the three tests – paid on a salaried basis, meet the salary level, and meet the duties test – they would be exempt and not subject to overtime pay. If they don’t meet all three tests, they are nonexempt and any hours worked more than 40 would be subject to overtime payments.

We allow salaried employees to leave for personal events such as children’s programs, doctor appointments, etc. Are we now required to track employee time so we can monitor whether they were working more than 40 hours per week?

It depends on whether these employees are classified as exempt or nonexempt based on the duties they perform. Timekeeping requirements have not changed; however, the number of employees subject to timekeeping requirements (nonexempt employees) will likely increase. Employers must keep a record of the daily hours worked by their nonexempt employees.

Are there additional/different requirements under Kansas law?

At this time, there are not additional or different requirements under Kansas law related to the payment of overtime wages.

If we have two employees in the same position and one person makes $48,000 but the other only makes $42,000, can one be exempt and the other one nonexempt, even though it's the same position?

Yes. You may have two employees in the same position doing the same work, and one could be exempt from overtime and the other nonexempt. You should carefully evaluate the duties in these positions to ensure they meet the duties requirements for exemption.

How will compliance be evaluated?

We are not aware of any special compliance initiatives at this time. However, the DOL may audit an employer at any time based on random selection or if an employee chooses to submit a complaint that he or she is not being paid appropriately. Claims may be filed, and employers may be required to pay overtime for the prior two years. If the employer knowingly misclassified the employee or didn’t pay required overtime, payments may be required going back 3 years and then doubled as a form of damages.

Employees who work less than 40 hours

Our organization’s salaried positions work less than 40 hours per week. Will the new rule affect us?

The way employees are paid (salaried or hourly) is not the same as how they are classified (exempt or nonexempt). Some of your salaried employees may need to be classified as nonexempt if they do not meet the three tests for exempt status. You may continue to pay them as a salaried employee; however, if they work any hours beyond 40 in a week, you would be required to pay them overtime.

How does the new rule affect part-time employees?

By definition, part-time employees work less than 40 hours per week and therefore would not be entitled to overtime pay. If you have part-time employees who sometimes work more than 40 hours per week, additional analysis may be needed if these employees are not already classified as nonexempt.

Bonuses

How is the minimum salary requirement affected by bonuses?

Generally, employees must be paid on a salary basis of at least $913 per week to meet the salary-level requirement. However, nondiscretionary bonus amounts up to 10% of the salary level requirement ($47,476) may be used to catch up an employee, if the nondiscretionary bonus amounts are paid at least quarterly.

What is the difference between discretionary and nondiscretionary bonuses? If we give bonuses based on employee evaluations, would that be considered discretionary?

Nondiscretionary bonuses are those that are paid if certain established requirements or metrics are met. Discretionary bonuses are those which an individual or group decides whether to award them. Bonuses based on an employee evaluation may be considered discretionary or nondiscretionary, depending upon how the bonus is set up. Additional analysis of your situation would be warranted.

If someone doesn't meet his/her quarterly bonus (and that puts him/her below the salary-level requirement), will the organization need to go back to pay overtime? How will we know how much to pay?

Yes, if the employee did not meet his/her quarterly bonus requirement, and therefore did not meet the required salary level for the quarter, the organization would need to pay overtime for any hours worked more than 40 in each week of the quarter. If it is possible that any employees would not meet the salary-level requirement, it may be best to track their daily work hours in the event that they would be deemed nonexempt. Tracking daily hours of work is a requirement for nonexempt employees.

Do commissions count toward the salary-level requirement?

If the commissions meet the requirements of a nondiscretionary bonus, they may be included toward the $47,476 salary-level requirement, up to 10%.

Would noncash fringe benefits, such as a company vehicle, be treated similar to nondiscretionary pay?

Fringe benefits are not included in salary calculations.

If an employee has historically received an annual bonus, and that gets him/her up to the salary threshold, can we do a quarterly draw and then make the fourth quarter bonus larger if needed?

Bonuses must be paid at least quarterly and may make up to a total of 10% ($4,746) of the required annual salary amount ($47,476). The bonuses each quarter could be different amounts; however, the quarterly bonus amount cannot count toward more than $1,186.50 ($4,746 / 4).

Duties test

What is a good resource to use to help with determining exempt status based on the duties test?

The DOL has published a number of fact sheets and opinion letters; one resource you may want to look at is dol.gov/whd/overtime/fs17a_overview.pdf. However, there is no black-and-white checklist to help with determining exempt status.

If my organization chooses to raise the salaries as needed to meet the new threshold, is it safe to assume that employees who met the duties test previously will still meet it?

The duties test has not changed. If employees previously met the duties test and were properly classified as exempt before, and their job duties have not changed, they should meet the duties requirement still. It is still a best practice to carefully examine your exempt positions to ensure that they were properly classified according to the duties test requirements. You can find more information about the qualifications for exempt status at dol.gov/whd/overtime/fs17a_overview.pdf.

Educational considerations

Can you classify some higher learning professionals as exempt and some as nonexempt, such as entry level nonexempt professionals?

Yes. There are three tests for exemption: paid on a salaried basis, paid above a certain level, and review of duties performed. More careful analysis of the position duties would be required.

Will teachers remain exempt even if they do not meet the salary requirement?

Teachers, as defined by the DOL, are exempt from the salary requirement.

Government considerations

Are elected and appointed officials considered exempt?

Elected officials, their policymaking appointees, and their personal staff and legal advisors who are not subject to civil service laws are not covered by the FLSA and will not be impacted by the rule.

Can we use compensatory (comp) time in lieu of overtime pay, and how would that work?

Local government agencies may provide comp time in lieu of overtime if there is an existing agreement in place. Comp time must be provided at a rate of 1.5 hours for each hour of overtime worked. Most state and local government employees can accrue up to 240 hours; certain types of employees may accrue up to 480 hours.

Not-for-profits

How will the new rule affect not-for-profits?

The same rules for governmental entities apply to not-for-profits; however, not-for-profits will want to consider whether any positions would not be subject to the FLSA in the enterprise or individual coverage requirements.

Are church staffs subject to the new rule?

Some churches or positions may not be subject to the FLSA, depending upon whether they meet enterprise or individual coverage options. Additional analysis would be required to answer this question. See this opinion letter discussing positions within a church.

Questions?

If you have questions about the FLSA changes, please contact Carrie Cox using her information below.

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Carrie Cox, PHR, SHRM-CP
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Carrie Cox, PHR, SHRM-CP

Senior Organizational Development Consultant
Organizational Development & Family Business Services

Carrie has experience in a variety of human resource functions, including labor laws, compensation structures, employee classification, benefits administration, performance management, and human resource best practices. She has served clients in a number of industries including manufacturing, construction, banking, and not-for-profits. Carrie is a member of the national and local chapters of the Society of Human Resource Professionals’ (SHRM) and serves on teh Wichita chapter board of directors. She is a certified practitioner for the Myers-Briggs Type Indicator® and the Hay Group’s Emotional and Social Competency Inventory. Her additional certifications include Professional in Human Resources (PHR) from the Human Resource Certification Institute and SHRM-CP designated by the Society for Human Resource Management.

Information in this document has been obtained by Allen, Gibbs & Houlik, L.C. from sources believed to be reliable. However, AGH does not guarantee the accuracy nor completeness of any information. This communication does not and is not intended to provide legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, AGH assumes no liability whatsoever in connection with its use. Nothing in this communication can be used to avoid penalties that may be imposed by a governmental taxing authority or agency.