By John Fester
May 26, 2016
Last week the U.S. Department of Labor announced updates to federal wage regulations that will increase worker eligibility for overtime. As a refresher, the general rule is that all employees are entitled to overtime after working 40 hours in a workweek, unless one of the exceptions set forth in the Fair Labor Standards Act (“FLSA”) applies. Illinois also has an overtime law, but this update will focus primarily on the FLSA and the new regulations.
The good news is that nothing in the new regulations applies to teachers. Teachers remain exempt from overtime, regardless of salary level. However, other school district employees will be impacted by the changes. This is because the minimum salary that must be paid to a non-teaching employee in order to exempt that employee from overtime eligibility rises from $23,660 ($455 per week) to $47,476 ($913 per week) on December 1, 2016. Employees paid hourly, or paid an annual salary of less than $47,476, will be eligible for overtime and no further analysis is needed.
Remember that annualizing an hourly rate is not the same as being paid a “salary” for FLSA purposes. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. With few exceptions (for example, unpaid FMLA leave), an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours actually worked.
However, the fact that an employee is paid on a salary basis is not alone sufficient to exempt that employee from the FLSA's overtime requirements. Generally, one of the FLSA’s “white collar” duties exemptions must also apply. These exemptions exclude "bona fide" executive, administrative, and professional employees from overtime requirements. Determining whether a “white collar” duty exemption applies requires a fact-specific review of a position’s actual job duties. These exemptions will almost always apply to central office administrators (superintendent, assistant superintendents, directors, business managers, etc.) and building administrators (principals and assistant principals).
Conversely, the “white collar” exceptions will rarely apply to support staff positions because of the authority required for the executive exemption; the discretion and independent judgment required for the administrative exemption; and the advanced knowledge and consistent exercise of discretion and judgment required of the professional exemption. For example, even if you have an administrative assistant earning a salary of more than $47,476 on December 1, the position will remain eligible for overtime unless the administrative exemption test can be satisfied.
Employers have a range of options for responding to the increased standard salary level. For each affected employee newly entitled to overtime pay, employers may, subject to applicable collective bargaining agreements and bargaining obligations:
- Increase the salary of an employee to whom a “white collar” duties exemption applies to at least the new salary level to retain his or her exempt status;
- Leave the employee below the new threshold and pay an overtime premium (or compensatory time) of one and a half times the employee's regular rate of pay for any overtime hours worked;
- Reduce or eliminate overtime hours;
- Reduce the amount of pay allocated to base salary and use the difference to account for overtime for hours worked over 40 in the workweek, in order to hold total weekly pay constant; or
- Use some combination of these responses. Obviously, some responses will be received better than others by the employees.
Just as has been done for non-exempt employees in the past, it will be essential for employers to keep accurate records of hours worked for those employees who become newly eligible for overtime on December 1. As a refresher, the following records should be kept (preferably electronically) for each non-exempt employee for three years:
1. Employee's full name and social security number.
2. Address, including zip code.
3. Birth date, if under 19.
4. Gender and occupation.
5. Time and day of week when employee's workweek begins.
6. Hours worked each day.
7. Total hours worked each workweek.
8. Basis on which employee's wages are paid (e.g., per hour, per week)
9. Regular hourly pay rate.
10. Total daily or weekly straight-time earnings.
11. Total overtime earnings for the workweek.
12. All additions to or deductions from the employee's wages.
13. Total wages paid each pay period.
14. Date of payment and the pay period covered by the payment.
Also in the area of recordkeeping, the Illinois Department of Labor recently required the following information be kept for all employees: name and address, the hours worked each day in each work week, the rate of pay, copies of notice of hire rate and notice of any subsequent changes, the amount paid each pay period and all deductions made from wages or final compensation. Additionally, for employees given paid vacation, employers must maintain for a period of not less than 3 years accurate records of the number of vacation days earned for each year and the dates on which vacation days were taken and paid. The consequence for failing to keep these records is the inability to contest the employee’s recollection and estimate of time worked but not paid, overtime worked but not paid, and the amount of vacation pay owed at separation.
This does not necessarily mean non-exempt employees must punch a time clock each day. Employers have options for accounting for workers' hours. There is no particular form or order of records required and employers may choose how to record hours worked for overtime-eligible employees. For example, where an employee works a fixed schedule that rarely varies, the employer may simply keep a record of the schedule and then indicate the changes to the schedule that the worker actually worked when the worker's hours vary from the schedule.
We recommend you take some time this summer to review positions currently paid less than $47,476 per year, identify those that you presently treat as exempt from overtime, and analyze the identified positions to determine whether it makes sense to try to continue the overtime exemption by raising the employee’s salary, or whether other steps should be taken to ensure overtime compliance on and after December 1, 2016.
Questions regarding overtime eligibility or exemption require a very fact specific analysis. If you have questions about a particular position or positions in your district, please contact your attorney at Scariano, Himes and Petrarca.