The Fair Labor Standards Act (FLSA) under the Department of Labor has brought forth a major change to the Overtime Rule for companies in the United States, scheduled to take effect before the end of the year or the swearing in of a new president, on December 1, 2016.
THE OLD FLSA OVERTIME THRESHOLD
To a majority of America, the average work week looks like starting around 7am or 8am and getting off around 5pm or 6pm. Give or take a few hours as well as a lunch break each day, this is your typical 40-hour work week. Under the old “Overtime Threshold” of the FLSA—the threshold employees must cross in order to legally not be paid overtime—the amount was $455 per week. This amounts to a little more than $11 per hour, meaning that so long as an employer paid his employees somewhere around $12 per hour, at minimum, his employees were not entitled to overtime pay.
THE NEW FLSA OVERTIME THRESHOLD
The new Overtime Threshold is $913 per week. Again, dividing this up into an average 40-hour workweek, that’s $24.25 per hour. This $913 amount is not arbitrary. It is based on labor statistics. Specifically, it is set to match the 40th percentile of weekly earnings for full-time salaried workers. Note that it is designed to annually increase in order to stay in step with the 40th percentile, adjusting for inflation.
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HOW ARE EMPLOYEES DEFINED?
Under the FLSA, an “employee” is any individual employed by an employer. To “employ” means to suffer or permit to work. This is a very broad definition, but it is how the statute defines these words. If a business owner or a worker can show the existence of some type of employment relationship, then the Act’s overtime and minimum wage requirements apply.
WHAT ABOUT INTERNS?
The Department of Labor does not consider interns, students, or trainees as employees if all of the following is met:
- Training is similar to something one would find in a vocational school, regardless of employer’s actual operational involvement in the training;
- Training is for the benefit of the intern, student, or trainee;
- The intern, student, or trainee does not displace regular employees, but instead works under employee supervision;
- The employer who provides training receives no “immediate advantage” from interns, students, or trainees; in fact, it is sometimes expected for the employer to experience impeded operations due to training the intern, student, or trainee;
- The intern, student, or trainee is “not necessarily entitled to a job” at the end of the internship or training period; and
- The employer and the intern, student, or trainee mutually understand that no wages will be paid during the internship or training period.
This six-part test may seem complex. However, it is designed to make sure that true interns are at the workplace for their own educational or vocational purposes. This distinguishes them from workers whose goal is to aid in the company's bottom line. Looking to whether the intern displaces the present or future hours or position of paid employees is probably the simplest and most important factor for an employer to determine right away.
WHAT ABOUT VOLUNTEERS?
Although not specifically identified within the Act, volunteers are still excepted from being defined as an employee. Instead, a volunteer is defined as someone who voluntarily performs services for state or local governments for little or no compensation. The service a volunteer performs cannot be the “same type of services which the individual is employed to perform for such public agency.” The reason for the differences in performance of services is so that an employer does not coerce their employees to “volunteer” for their services.
A volunteer must offer his service “freely and without pressure or coercion, direct or implied, from an employer.” Although their service is freely offered, an employer may compensate a volunteer through “expenses, reasonable benefits, and/or a nominal fee,” all without fear of the volunteer losing their “volunteer status.”
WHAT ARE THE IMPLICATIONS FOR EMPLOYERS?
Under the FLSA, an “employer” is any person acting directly or indirectly in the interest of an employer in relation to an employee. This definition is just as broad as the one for employee, but courts typically hold that the FLSA’s broad definition is necessary in order for the “remedial purposes of the Act” to be carried out. Generally speaking, the test for classifying one as an employer is whether that person “possessed the power to control the workers in question.” If the power to control is established, that person is an employer and those workers under his authority may be employees.
Outside of classifying employees and employers, the most blaring issue is the new Overtime Threshold of $913 per week. Any employer who is comfortable paying their employees overtime for those that work beyond 40 hours each week will simply ignore these changes and keep paying their employees the same rate. However, those employers who would rather not pay overtime have a couple of options before them:
- Give employees a raise. The FLSA states that an employee is exempt from overtime compensation if he earns more than $913 per week. Therefore, if the company can handle it, raise the employee’s weekly wage.
- Ensure no one works over 40 hours per week. One has to work more than 40 hours per week in order to actually earn overtime pay. So long as it does not hinder the company’s operations, cap every employee under the $913 weekly ceiling to 40 hours per week.
WHAT’S NEXT?
The next step is to review your company’s personnel and your company’s finances. Because the new regulations will take effect December 1, 2016 , it is imperative to begin preparing now. The employment attorneys at VLF are here to assist with all business, labor and employment questions and concerns, including the latest FLSA developments. Do not hesitate to reach out to one of our lawyers with your inquiries.