Overtime laws will be changing

Published 7:27 pm Tuesday, October 18, 2016

PORT NECHES — The U.S. Department of Labor is changing overtime laws for white-collar exemptions and one Beaumont attorney wants the public to be informed.

Eliot New, with Germer Attorneys at Law, spoke on Tuesday afternoon at a meeting for the Golden Triangle Business Roundtable at the Pompano Club in Port Neches.

He said the new law goes into effect on Dec. 1, 2016, for hourly an exempt employee status.

Subscribe to our free email newsletter

Get the latest news sent to your inbox

Federal Fair Labor Standards Act, FLSA, provides and governs minimum wage and overtime requirements. The minimum wage is currently $7.25 per hour.

Historically, executive, professional and administrative employees were exempt from the minimum wage and overtime requirements if they met two tests:

  • Salary test of $55 a week or $23,660 a year
  • Duties test specific to the exemption being claimed

Certain Highly Compensated Employees, HCE, earning at least $100,000 a year also received special treatment, including a less strenuous duties test to be exempt.

Effective Dec. 1, 2016, the salary test is changing dramatically, he said.

To satisfy the new executive, professional, or administrative exemptions, employees must be paid a salary of at least $913 a week or $47,476 a year and meet the following requirements:

  • Existing hourly employees are not affected.
  • Existing salaried employees making at least $47,476 a year are not affected.
  • Employers most affected will include manufacturers, small businesses, retailers, call centers, restaurants, hospitality, and nonprofits.
  • As before, the salary may not be reduced in weeks when the employee works less than 40 hours (except for certain full day absences).
  • Certain bonuses, incentives, and commissions may go toward satisfying the salary test (up to $91.30 a week, $1,187 a quarter, or $4,748 a year).
  • However, those bonuses, incentives, and commissions must be non-discretionary and paid at least quarterly.
  • The employer must make a “catch-up” payment at the end of the quarter to ensure the employee remains exempt.
  • Required salary amount will adjust every three years (upward curve).

To qualify for the less strenuous duties test under the new rule, an HCE must earn $134,004 a year.

  • At least $47,476 must be guaranteed base compensation.
  • The remainder may be non-discretionary bonuses, incentives, and commissions.

Computer employee exemption and outside sales exemptions have not changed. Certain employees are still exempt regardless of tests — i.e., teachers, doctors and lawyers.


Applicability of the FLSA:

All governmental employees.

All employers with more than $500,000 in annual revenues, and all employers with an employee engaged in interstate commerce – virtually all employers.



The Department of Labor’s Wage and Hour Division continues to have investigative and enforcement authority. Enforcement is through civil lawsuits remains the most potent enforcement mechanism, according to New.

Employers who have violated the FLSA generally must pay any unpaid/underpaid wages, a penalty in an equal amount, and the employee’s attorney’s fees.

Many suits are collective actions, which effectively allow one employee to sue his or her employer on behalf of a class of employees.

“It’s a lose-lose if you violate the FLSA,” he said.


Costs of the Rule:

DOL estimates the new rule “will transfer income from employers to employees” in an estimated amount of $1.2 billion per year. DOL also estimates compliance with the new rule will cost employers $295 million per year.


Potential consequences for employers:

Instead of increasing salaries, employers may reclassify exempt employees as non-exempt. Employers must require non-exempt employees to keep timesheets/use a time clock.

Employers will likely begin strictly enforcing a work schedule. Including regulating mobile phones/email devices use for non-exempt employees.

New advised employers may want to rearrange work schedules to prevent overtime or they may want to hire part-time employees to prevent overtime. Employers may want to cap the amount of work hours, to control overtime costs.

All of these changes may cause the remaining exempt employees to work longer hours. Employers may want to consider incentivizing these employees through bonuses, raises, etc.


Potential consequences for employees:

Employees may lose scheduling flexibility, they may lose ability to work remotely due to difficulty tracking hours worked and employees may earn less total compensation.

Certain absences will be unpaid. Overtime may be denied and/or capped.

Employees may lose prestige associated with salaried positions and consider it a demotion. They may lose responsibilities previously assigned to them to meet duties test or they may lose certain benefits that are only offered to salaried employees.

“They may lose their ability to hire and fire that made them a boss,” New said.


Next steps:

Get the new compliance posters for workplaces that were required on Aug. 1, 2016. Update and review job descriptions to ensure proper classification under duties test.

If employees previously misclassified, this is ideal time to correct.

“It won’t raise eyebrows, like a classification change made without a rule change,” he said.

Salaries of exempt employees will be reviewed to ensure proper classification under new salary test. If previously exempt employees do not meet the new salary test, their salary may be raised to meet the new test or re-classify the employee as non-exempt.

Other measures suggested include:

  • Implement system to track and record hours worked.
  • Consider reducing the hourly rate which, when combined with overtime payments, will keep the employee at the same compensation.
  • Consider adopting a fluctuating workweek or changing the workweek.
  • Consider placing limits on overtime hours.
  • Ensure work performed outside normal work hours — i.e., phone calls and emails — is being properly recorded and paid, or eliminated.

David Ball: 409-721-2427