Final Rule Released - FLSA White Collar Exemption Changes

November 29, 2016

Update

On Novemeber 22, a Federal Judge blocked the Department of Labor's "White Collar" Final Rule. The Judge issued a Prelimnary Injunction and as of now, the DOL's Final Rule will not go into effect December 1. ACA will continue to monitor and present the most current decisions and rulings. Check out this article for more information, which includes a statement from the Department of Labor and the full text of yesterday's court ruling.

Notably, this ruling has no effect on whether a camp does or does not qualify for the FLSA’s Section 13(a)(3) exemption referenced below. Also, the ruling does not preempt state or local overtime laws that contain overtime exemption requirements more stringent than those currently required under federal law.

Webinar

ACA hosted a webinar on October 6 about this rule change. The recording is available for purchase.

Final Rule

Department of LaborOn May 18, 2016, the U.S. Department of Labor released the final rules regarding changes to the "white collar" exemption to the Fair Labor Standards Act (FLSA) 29 CFR Part 541. At the same time, there is a bill in Congress that would nulify the changes in overtime regulations and delay any similar efforts for at least a year. The new bill, the Protecting Workplace Advancement and Opportunity Act (PWAOA) (H.R. 4773, S.B. 2707, would require the Secretary of Labor to void the rules and/or block enforcing them. Read more about the PWAOA in Congress. As of November 7, 2016, this bill has passed in the House of Representatives and will now move to the Senate.

Background

On July 1, 2015, the Department of Labor released proposed changes to the Fair Labor Standards Act (FLSA) 29 CFR Part 541 — specifically regarding Section 13(a)(1), the “white collar” exemption from minimum wage and overtime pay. The public had until September 4, 2015 to comment on these proposed changes. The DOL considered the more than 270,000 public comments and released their final rule on May 18, 2016. The change has no effect on FLSA Section 13(a)(3) — Exemption for Seasonal Amusement or Recreational Establishments.

White Collar Exemption

Currently, Section 13(a)(1) of the FLSA provides an exemption from minimum wage and overtime requirements for any employee employed in a bona fide executive, administrative, or professional capacity. To qualify for exemption, employees must meet certain standards regarding their job duties and be paid a minimum weekly salary. Camps may be utilizing this exemption for some of their year-round professional or administrative staff. It is important to note that when state laws differ from Federal FLSA, an employer must comply with the laws that best protect employees.

Final Rule Changes

The  change has no effect on FLSA Section 13(a)(3) — Exemption for Seasonal Amusement or Recreational Establishments.

The effective date of the final rule is December 1, 2016.

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional "white collar" workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Potential Impact on Camps

It is important to note that when state laws differ from Federal FLSA, an employer must comply with the laws that best protect employees. The  change has no effect on FLSA Section 13(a)(3) — Exemption for Seasonal Amusement or Recreational Establishments.

According to the Department of Labor, Camps (and all employers) that utilize the white collar exemption from FLSA would be required to either:

  • Raise salaries: For workers whose salaries are close to the new threshold and who meet the duties test, employers may choose to raise these workers’ salaries to meet the new threshold and maintain their exempt status.
  • Pay overtime above a salary: Employers can also continue to pay newly overtime-eligible employees a salary and pay overtime for hours in excess of 40 per week. The law does not require that newly overtime eligible workers be converted to hourly pay status. According to the DOL, this approach works for employees who usually work 40 hours or fewer, but have seasonal or occasional spikes that require overtime, for which employers can plan and budget the extra pay during those periods.
    • For an employee who works a fixed schedule that rarely varies, the employer may simply keep a record of the schedule and indicate the number of hours the worker actually worked only when the worker varies from the schedule.
    • For an employee with a flexible schedule, an employer does not need to require an employee to sign in each time they start and stop work. The employer must keep an accurate record of the number of daily hours worked by the employee. So, an employer could allow an employee to provide just the total number of hours they worked each day, including the number of overtime hours, by the end of each pay period.
  • Evaluate and realign employee workload: Employers can limit the need for employees to work overtime by ensuring that workloads are distributed to minimize overtime and that staffing levels are appropriate for the workload.
  • Adjust employees’ base pay and pay overtime: Employers can adjust the amount of an employee’s earnings to reallocate it between regular rate of pay and overtime compensation. This method works for employees who work a relatively small amount of predictable overtime. The revised pay may be on a salaried or hourly basis (there is no requirement to convert workers to hourly pay status), but it must include payment of overtime when the employee works more than 40 hours in a week.

Does This Rule Change Apply To Your Camp?

It is important to note that when state laws differ from Federal FLSA, an employer must comply with the laws that best protect employees. The  change has no effect on FLSA Section 13(a)(3) — Exemption for Seasonal Amusement or Recreational Establishments.

There are a number of exemptions already detailed in the Fair Labor Standards Act (FLSA). This proposed rule change is only in reference to 29 CFR Part 541 Section 13(a)(1), the “white collar” exemption from minimum wage and overtime pay.

The proposed rule change is not applicable to any “Seasonal Amusement or Recreational Establishment”. You might operate year-round, but still qualify as a seasonal business. To qualify, you must:

  • not operate for more than seven months in any calendar year, OR
  • during the preceding calendar year, your average receipts for any six months of such year were not more than 33-1/3 per centum of your average receipts for the other six months of such year.

Resources

For additional information, contact:

Department of Labor, Wage and Hour Division
Toll free information and help line: 866-487-9243

 

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