There’s a bit of a conundrum surrounding overtime rules and the issue can be confusing for professional service organizations, which often have exempt employees (i.e. not required to receive overtime). This article is not intended to take sides on what constitutes a fair and reasonable wage (assuming it is at or above the minimum standards); rather, it is simply a review of what currently prevails and what has been proposed.
In 2014, President Obama directed the Department of Labor (DOL) to examine the “white collar exemption” that was put in place for executives, administrative, and professional employees by the Fair Labor Standards Act (FLSA), which went into effect on August 23, 2004. Those standards set three criteria for declaring an employee exempt from overtime: 1) they must be paid a salary; 2) the salary level must be greater than $455 per week, ($23,660 on an annualized basis); and, 3) the employee’s primary duties must be consistent with managerial, professional, or administrative positions as defined by the DOL.
The DOL, in executing action under President Obama’s directive, issued a Notice of Proposed Rule Making on July 6, 2015. This would have raised the salary criteria to $970 per week ($50,440 annually) and would have increased the total compensation requirement for highly compensated employees subject to a minimal duties test. In addition, the rulemaking contained a mechanism to automatically update the salary and compensation levels every three years, benchmarked against an aggressive consumer price index (the CPI-U) used to measure inflation for urban goods and services.
Businesses in which the workforce includes “administrative, professional, outside sales, and computer employees” – the types of employees specifically mentioned in the FLSA – would have been affected by the proposed rulemaking. It would also likely have changed the flexibility enjoyed by salaried personnel, given that overtime is measured based on hours worked on a weekly basis.
The House of Representatives, (H.R. 4773) and Senate (S. 2707) proposed identical legislation in 2016. The gist of the bills was to cause the DOL rulemaking to cease to have any force or effect, although no final action occurred.
The DOL went back the drawing board with a Request For Information issued on July 26, 2017, with a comment period that ended on September 25, 2017. Look for another round of rulemaking and, likely, Congressional action.
In the meantime, if you are a Pennsylvania business you should know that the state rules somewhat mirror the federal rules. There are, however differences. For instance, Pennsylvania does not allow an employer to restrict overtime based on an employee exceeding $100,000 in annual earnings, while the federal rules allow that restriction. Additionally, as noted above, federal rules do not require overtime for computer employees but Pennsylvania rules currently do, unless there are other state laws excluding them.
If you are not certain of your situation, you may want to check with a labor relations attorney who is familiar with these rules.
Timothy C. Hilbert can be reached at Email or 215.441.4600.
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