The Interplay of State and Federal Laws for Monitoring Overtime Compliance

The new federal overtime rule, which will go into effect December 1, 2016, has changed the thresholds for the employee exempt status from being required to receive overtime pay. Under the new federal rule, the salary threshold for the Fair Labor Standards Act’s (FLSA) white-collar exemptions will go up to $47,476 per year, or $913 per week. Currently, the FLSA requires employers to pay employees who work over 40 hours during the week overtime if they meet certain eligibility criteria. The U.S. Department of Labor (DOL) has indicated that the new rule is aimed at reducing attempts from employers to try to avoid paying overtime wages to employees who work long hours and are improperly classified as managers in order to retain an exempt employee status from overtime pay. In light of the fact that the previous salary threshold level was $23,660 in annual salary, or $455 per week, for exempt status, the new rule represents a significant increase in threshold level and is expected to affect a large number of previously exempt employees. According to the DOL, the new federal overtime rule is expected to increase the eligibility for overtime pay to an additional 4.2 million U.S. workers.

In the past, employers have not been very concerned about changes in the federal threshold because many states had a much higher threshold for exempt status. However, the federal increase in exempt status threshold is now higher than that of most states and requires immediate attention from employers in complying with overtime pay rules. The federal salary threshold for exempt status is set to regularly increase every three years and will remain a source of heightened concern when the state salary thresholds do not increase at the same rate.

In response to the new overtime rules, many companies are expected to increase the salary levels of their employees so that they fall into the exempt status. Before any business adopts this approach to avoid having to pay overtime wages, it is important to note that there are other ways that an employee can be eligible for overtime pay under the federal rules. Many of these factors relate to the job duties of the employee and can be both quantitative and qualitative in nature. For employers with offices in multiple states, it is important to make sure that you are complying with both the state and federal rules so that employees are offered the greater of the benefits they are entitled to under either federal or state law. As a matter of general practice, by focusing on compliance with federal rules first and then covering your bases under state regulations, you are more likely to avoid compliance issues. Additional considerations may arise if an employee is working between multiple locations in different states.

To make sure that your company is complying with the new federal and state rules on overtime, contact Simms Showers LLP for a consultation.