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Overtime Rule Changes FAQ

Payroll
Article
05/04/2016

Updated: July 20, 2016

New overtime rules from the U.S. Department of Labor could cause the number of employees eligible for overtime to skyrocket. Naturally, many employers have questions about the rules and how they might affect their business as well as their employees.

We’ve pulled together the questions we hear the most from business owners, and answered them to help you get a better idea of what the overtime rules could mean for your business when they go into effect.

1. Are home health agencies exempt from the regular overtime rules?

The U.S. Department of Labor (DOL) recently revised its regulations defining companionship services so that many direct care workers, such as certified nursing assistants, home health aides, personal care aides, and other caregivers are protected by the provisions of the FLSA (and would be subject to the final rule). The DOL also revised the regulations concerning live-in domestic service workers. The new regulations are effective January 1, 2015. For more information visit DOL.gov.

2. Are the limits based on total compensation (including bonuses) or only on annual base salary figures?

Although the DOL requested comment on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement, they did not propose specific regulatory changes on this issue.

3. Are some companies exempt, for example, churches?

There is no exemption for non-profit organizations under the FLSA or in the overtime rules. Thus, the rules may impact non-profit organizations having an annual dollar volume of sales or business done of at least $500,000. In determining coverage, only activities performed for a business purpose are considered — not charitable, religious, educational, or similar activities of organizations operated on a non-profit basis where such activities are not in substantial competition with other businesses.

4. Can non-exempt employees ever make salaries over threshold and then be considered as exempt status and paid a salary without overtime pay?

The fact that an employee is paid on a salary basis does not alone provide sufficient ground to exempt that employee from the FLSA's minimum wage and overtime requirements. For an exemption to apply, an employee's specific job duties and salary must meet all of the applicable requirements provided in the Department's regulations. A non-exempt employee may be paid a salary, but as the employer, you would still need to ensure they received at least the equivalent of minimum wage for all hours worked up to 40 in the workweek, and time-and-one-half their regular rate of pay for hours worked over 40.

5. Does this exempt rule affect small companies?

The FLSA does not provide an exemption for small businesses. Generally, the FLSA and the rule apply to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more, as well as certain other businesses. The FLSA creates a level playing field for businesses by setting a floor below which employers may not pay their employees.

6. If and when an exempt employee converts to non-exempt, can the job duties also change, meaning that the exempt employees should not be given supervisory duties?

It is not necessary under the FLSA to change an employee’s job duties when transitioning from exempt to non-exempt status. However, it will be necessary to begin tracking all hours worked for recordkeeping compliance and to ensure the minimum wage and overtime provisions of the FLSA are met.

7. Is the threshold based on salary alone, or does the cost of benefits contribute to the total amount?

Benefits are not included in the salary threshold in the current regulations or in the new regulations.

8. Is there an exemption for truck drivers?

Section 13(b)(1) of the FLSA provides an overtime exemption for employees who are within the authority of the Secretary of Transportation to establish qualifications and maximum hours of service pursuant to Section 204 of the Motor Carrier Act of 1935, except those employees covered by the small vehicle exception described below.

Thus, the 13(b)(1) overtime exemption applies to employees who are:

1. Employed by a motor carrier or motor private carrier, as defined in 49 U.S.C. Section 13102 (see Employer below);

2. Drivers, driver’s helpers, loaders, or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce (see Employee Duties below); and

3. Not covered by the small vehicle exception (see Small Vehicle Exception below).

9. Does the new salary threshold include current salary and commissions?

Employees exempt from the overtime provisions under the Professional, Executive and Administrative white collar exemptions must be paid a minimum and guaranteed salary each week, regardless of quantity or quality of work. Commissioned employees may be exempt from the overtime provisions under the outside sales exemption or the commissioned employees of a retail establishment exemption.

10. Our pay period is bi-monthly, how do I calculate overtime pay when the start date or end date is in the middle of a regular work week?

Overtime must always be calculated based on the hours worked in the workweek – not the pay period. They cannot be averaged over more than one workweek.

11. Would overtime requirement kick in for over 8 hours worked daily, or only on the workweek basis?

Under the federal wage and hour law, non-exempt employees must be paid at least one and one-half times their regular rate of pay for all hours worked after 40 in a workweek. State law may vary.

12. For an employee that is classified as a Salary-Para Professional Nonexempt with and hourly rate of 36.06 and annual pay of 75,000. Would this employee still be eligible for overtime?

Please go to the dol.gov website for information regarding the criteria to meet the white collar exemptions under the Fair Labor Standards Act. If the employee meets the criteria, they would need to receive a weekly salary of at least $913/week to maintain the exemption after December 1, 2016.

13. If employee had 32 hours worked plus 8 hours of vacation, Monday to Friday, and an additional 8 hours of overtime on Saturday. Should this employee be paid 8 hour of overtime at time and a half?

Under federal law wage and hour law, a non-exempt must be paid at least one and one-half times their regular rate of pay for all hours worked after 40 in a workweek. Vacation taken does not need to be counted toward hours worked for purposes of overtime calculation unless it is company policy or practice to do so. Compliance with a collective bargaining agreement may dictate otherwise and state laws may vary.

14. Do health insurance premiums count toward salary level test?

The Final Overtime Rule does not allow for the cost of insurance coverage to count toward the minimum salary level for the Executive, Administrative and Professional white collar exemptions.

15. I am not clear on who is exempt. We have teachers, a pastor, a music director...can you be specific on who is exempt?

There are many exemptions from the overtime provisions of the Fair Labor Standards Act. We would suggest you review the resources on the Dol.gov website for additional information applicable to your specific facts and circumstances.

16. So what does this mean to me, as the employer, for a FT Employee who works 40 hours/week and earns $34,000/yr plus a bonus of about $6,000? What if employee works 42 hours one week and 38 the next?

We would recommend that you first determine whether this position meets all the criteria for one of the Executive, Administrative or Professional white collar exemptions. Under the new regulations you may apply non-discretionary bonuses and other incentive pay toward the salary level, up to 10%, as long as the bonus is given at least quarterly. In the event the individual does not meet the criteria for one of these white collar exemptions or another exemption from overtime, they would be considered non-exempt and eligible for overtime pay for all hours worked over 40 in a workweek. Overtime pay must be paid at least one and one-half times the employee’s regular rate of pay. For additional information, please go to the dol.gov website.

17. Based on these new rules, my understanding is that all employees that make less than $913/week are non-exempt and thus are entitled to overtime pay even if all employees are paid on a salary basis. Is that true?

The basis of pay alone does not determine exempt or non-exempt status. An individual who does not meet the criteria for an exemption from overtime – in this case does not meet the salary threshold - would in fact be non-exempt and eligible for overtime pay.

18. This new rules only apply to "exempt" managers who are making below the $47,476, correct?

The new rules apply to the Executive, Administrative and Professional white collar exemptions. To meet these exemptions an individual would need to meet three criteria: the applicable duties test, the salary test, and salary level threshold. For more information, please go to the dol.gov website.

19. Can on-call pay be rolled up into an employee’s salary to reach the $47,476?

No. An exempt employee is not necessarily entitled to additional compensation for on call pay, but where it is received it would not be counted toward the salary threshold.

20. I’m not understanding the HCE. So if I have an employee who currently has an annual salary of $105,000 do I still need to increase the salary by 90th percentile? Where do we obtain the data on 90the percentile of the earnings of full-time salaried workers nationwide?

Please consider reviewing the applicable Fact Sheet on the dol.gov website regarding the Highly Compensated Employee exemption under the Fair Labor Standards Act. Additional information regarding the new annual compensation level for HCE exemption can also be found on the dol.gov website.

21. I work for a non-profit religious organization, in which I believe our administrative staff doesn't meet the updated salary amount. Does this mean that we have to increase the entire staff's salary?

Employees who currently meet all the criteria for the administrative white collar exemption but will not earn a salary that meets the new salary threshold of $913/week as of December 1, 2016 will be considered non-exempt and eligible for overtime pay as of the December 1, 2016. If you wish to retain the exempt status for these individuals, you would need to increase their salary to $913/week.

22. I have a small business which is sales driven base salaries are $36,000. I issue year-end bonuses of 10,000 to 15,000 our workweek is 37.7 per hr. Where does this place me? Am I in compliance?

Please review the criteria for the white collar exemptions to determine whether these employees meet all the criteria for the applicable white collar exemption. Of note, the outside sales white collar exemption was not revised under the Final Overtime Rule. Please also review the provision for applying non-discretionary bonuses and other incentive pay (which must be given at least quarterly) to the salary threshold for employees who meet the executive, administrative or professional white collar exemptions under the new regulations, effective December 1, 2016. These resources can be found on the dol.gov website.

23. If an employee is non-exempt, can we pay them a salary (same amount every 2 weeks) as long as we track hours and pay OT (more) if they work greater than 40 hours?

This is permissible under the Fair Labor Standards Act. Please ensure compliance under applicable state laws as well.

24. If you have fewer than 15 Medicaid beds with people with developmental disabilities, does that mean the company doesn't have to pay overtime?

If your company meets the criteria for the temporary non-enforcement notice issued by the DOL with regard to the Final Overtime Rule, you will not be subject to fines or penalties from the US DOL for non-compliance with the Final Rule until March of 2017. You would remain obligated to comply with the final rule as well as all other provisions of the federal wage and hour law and applicable state laws and subject to private litigation for non-compliance.

25. Are teachers (including preschool) exempt? It is possible that certain teachers are exempt under the professional white collar exemption.

Please refer to the dol.gov website for access to additional information including their fact sheet on this particular white collar exemption.

26. We are a church who operates a school as well (one EIN). Couple of questions:

  • Are called (ministerial) workers still exempt?
    It is unclear as to whether you are asking if these employees are exempt from overtime or actually exempt from coverage under the Fair Labor Standards Act. The Final Overtime Rule did not change the coverage rules for the Fair Labor Standards Act.
  • How does this rule affect teachers? Will they need to be paid overtime if salary less than $47,000?
    The Final Overtime Rule only impacts those teachers that met the Professional White Collar exemption criteria – the duties test, the salary test and the salary threshold test. If they currently meet all the criteria for this exemption, then the final overtime rule may impact them if their weekly salary is below the $913/week threshold, effective December 1, 2016.

27. Some of our staff has suggested that they will just volunteer any hours over 40 that they work. Is this acceptable?

No, this is not acceptable under the Fair Labor Standards Act.

28. One of my employees is required to travel on business. Many times due to airfare costs we travel on Sundays. The employee is salaried, so what happens now? Is this considered overtime (travel time)?

Please review the resources on the dol.gov website regarding compensable time specific to travel time. The answer to your question will be determined by specific facts and circumstances, but primarily by whether the employee is considered non-exempt or exempt – regardless of the basis of pay (i.e., salary, hourly, piece rate, etc.)

29. We pay 100 percent of employee health insurance as well. I'm curious to know if that is included as salary/pay to meet the minimum level.

Health insurance premiums may not be counted toward the salary when determining whether an employee who otherwise meets the Executive, Administrative or Professional white collar exemption.

30. If we have a policy in place that no overtime is paid and that employees are not to work over 40 hours, does this cover the organization if the employee chooses on his or her own to do so knowing they won't be paid?

It does not. Employees are entitled to be paid the appropriate pay for all hours worked and the appropriate overtime pay for all hours worked over 40 in a workweek, regardless of whether they obtained permission to work the hours.

31. So these changes do not affect nonprofit businesses, like a daycare?

The Final Rule may impact any employer who employs an employee who is covered by the Fair Labor Standards Act and who has been accurately classified as exempt under the Executive, Administrative or Professional white collar exemptions from the Fair Labor Standards Act.

32. Is overtime by day/week/or pay period? For example, we pay bi-weekly. Can I work 50 hours one week and 30 hours the other week—totaling 80—in the same pay period without overtime?

Under federal law, non-exempt employees must be paid one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Each workweek stands alone and overtime may not be averaged over 2 or more weeks. State law may vary.

33. Does bi-weekly pay affect the weekly average or they only look at it weekly (40 hours)?

Under federal law, non-exempt employees must be paid one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Each workweek stands alone and overtime may not be averaged over 2 or more weeks. State law may vary.

34. Are there separate guidelines for small (1-49 employees) versus larger businesses?

The Final Overtime Rule does not differentiate between small and large employers.

35. Is overtime considered more than 40 hours a week? Or is it more than the number of hours the employee was hired for? For instance, we have part-time staff who work 15 hours a week. Do they have to be paid overtime if they, for example, work 20 hours in a week?

Under federal law, non-exempt employees must be paid one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Each workweek stands alone and overtime may not be averaged over two or more weeks. State law may vary.

 

The information in these materials, and that provided by the presenter during the webinar, should not be considered legal, accounting, or investment advice, and it should not substitute for legal, accounting, investment, and other professional advice where the facts and circumstances warrant. It is provided for general informational purposes only. If you require legal, accounting, or investment advice, or need other professional assistance, you should always consult your attorney, accountant, or other professional advisor to discuss your particular facts, circumstances, business, personal finance, and investment needs.

 

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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