The U. S. Department of Labor, the federal agency responsible for enforcing the federal Fair Labor Standards Act (“FLSA”), recently issued revised overtime regulations. The new regulations, which go into effect on December 1, 2016, are expected to significantly increase the number of employees eligible for overtime compensation.
The FLSA and Washington state law generally require employers to pay nonexempt employees for all hours worked in excess of 40 hours per week at a rate of one and one-half times their regular pay. Under both federal and state law, certain categories of employees are exempt from the overtime rule, including executive, administrative, professional, and outside sales employees if their work duties meet certain requirements, and they are paid at least a certain minimum salary amount. These are known as the “white collar” overtime exemptions. Under the new regulations, in order to be exempt from minimum wage and overtime requirements, white collar employees must receive a salary of at least $913 per week (the equivalent of $47,476 per year). This amount is more than twice the current threshold of $455 per week.
Because the federal salary basis is higher than the threshold set forth in Washington’s statute, and state law requires that employers follow whichever rule provides greater protection to employees, employers will need to follow the federal rule to determine which employees are eligible for overtime pay. This means as of December 1, 2016, any employee earning less than $913 per week may no longer be classified as exempt and will be entitled to overtime pay for all hours worked in excess of 40 in a workweek.
The minimum salary amount will be updated every three years, beginning on January 1, 2020. The amount will be indexed to the 40th percentile of full-time salaried workers in the lowest-wage census region. In 2020, the DOL estimates the minimum salary threshold will increase to approximately $51,168 annually.
The revised regulations broaden the definition of salary basis to allow employers to use applicable nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement, provided that these types of payments are made on at least a quarterly basis. Additionally, under certain circumstances, the regulations allow employers to provide a quarterly “make up” payment to employees whose income was lower than expected during the quarter.
The new regulations also update the FLSA’s highly compensated employee exemption. Washington law does not recognize an overtime exemption for highly compensated employees, so this update will not have any practical effect in Washington.
These changes will significantly impact both employers and employees. In order to remain compliant and avoid wage violations, we recommend employers thoroughly review employee records to identify any employees who are at or below the new salary level, and review and update any wage and hour policies. If you have any questions regarding the new regulations, the FLSA, or Washington’s wage and hour laws, please contact Sara Campbell or another employee in MPBA’s Employment Law Department.