Today, the Department of Labor (“DOL”) released its long awaited new overtime rules, which resulted in a seismic shift in workplace pay. Under the new rules, it is estimated that 40% of currently salaried employees will become eligible for overtime pay. Employees being paid less than $47,476 a year will either get a raise, or will start receiving overtime compensation by December 1, 2016.

The Fair Labor Standards Act (“FLSA”) requires that most workers should be paid time and one-half (overtime pay) for hours they work over forty in a workweek. The FLSA provides certain exemptions for employees who work in an executive, administrative, or professional capacity. The test for whether an employee qualifies for an exemption looks to the employee’s job duties and the employee’s salary level. Currently, the salary level is set at $455 a week, or $23,660 annually. The new DOL rules substantially raise the salary level to $913 a week, or $47,476 annually. The new rules also raise the salary level for the highly compensated employee exemption from $100,000 annually to $134,004.

Finally, the new rule provides that the salary basis level for these exemptions will increase every 3 years to ensure it is maintained at the 40th percentile of fulltime salaried workers in the lowed income region of the country. The first update will take place on January 1, 2020.

“These new rules will extend the FLSA’s overtime protections to roughly 4.2 million workers in the United States” explains Attorney David Zoeller with Hawks Quindel. Attorney Zoeller, who represents employees in claims under the FLSA, anticipates that these “new rules will have the greatest impact on mid-level managers in retail and food service industries, including restaurants.”

The new DOL rules come on the heels of a nationwide explosion of lawsuits filed under the FLSA which have doubled over the last ten years. Wisconsin has not been immune from this trend. Attorney Zoeller explains that there were 31 FLSA cases filed in Wisconsin federal courts in 2012, that number jumped to 75 in 2015. Employers frequently claim that the FLSA’s regulations are outdated and unclear with grey areas which results in many misclassification lawsuits. It is estimated that roughly 20% of current salaried workers are misclassified as exempt from overtime under the FLSA. The new rules address this misclassification crisis by providing a bright line rule for employers to follow. According to the DOL, an employee’s salary level has historically been the best single test of exempt status under the FLSA. Raising the salary level to $913 a week will automatically classify those individuals as non-exempt, without looking to whether their job duties meet the duties tests provided by the exemptions.

The FLSA – which provides minimum wage and overtime protections – was signed into law on June 25, 1938. Its goal was to provide hard working Americans with “a fair day’s pay for a fair day’s work.” Attorney Zoeller explains “the FLSA is, at its heart, a job creation bill because it encourages employers to hire more workers rather than pay them overtime compensation.” On March 13, 2014, President Obama signed a Presidential Memorandum directing the DOL to update the regulation defining which white collar employees are exempt from the FLSA’s overtime provisions. President Obama specifically called upon the DOL to modernize and simplify the regulations while ensuring that FLSA’s overtime protections are fully implemented.

On July 6, 2015, the DOL published its proposed rules and during the sixty day comment period that followed, the DOL received more than 250,000 written comments regarding the proposed rules. Having reviewed those comments, the DOL has published the new rules which will become effective December 1, 2016.

The rule will likely be challenged by the Republican legislation under the Congressional Review Act which allows for a joint resolution disapproving a new federal regulation. However, a joint resolution will not block the implementation of rule unless it is signed by President Obama or approved by 2/3rds of both the Senate and Congress. Neither is likely. Although the new rules will likely survive an attempted legislative block, “it is likely that the new rules will be subject to legal challenge from various business groups like the National Restaurant Association” explains Zoeller.

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David Zoeller