Navigating the complexities of payroll and HR compliance can be daunting for any business. With the recent changes to the Fair Labor Standards Act (FLSA)'s overtime regulations by the Department of Labor (DOL), effective July 1, 2024 —it's more important than ever for you to stay informed and proactive. These new overtime rules are set to impact millions of workers and businesses, altering the landscape of employee compensation and benefits.
To help you understand and adapt to these changes, we've compiled a comprehensive set of Frequently Asked Questions (FAQs) addressing the most critical aspects of the new overtime ruling!
How does this new rule interact with state wage laws?
State and federal overtime laws interact in a way where employees are entitled to the overtime provisions that benefit them the most.
Generally, the Fair Labor Standards Act (FLSA) is the federal law governing overtime, while states may have their own laws (like the California Labor Code) that also cover overtime. If both federal and state laws apply to an employee, the law providing the greater benefit (higher overtime pay rate, more generous exemptions, etc.) typically applies.
It is imperative that employers are familiar with the changes to the FLSA and the state overtime laws where they are located or where the employees perform work.
Do bonuses/commissions count toward the salary threshold?
According to FLSA regulations, non-discretionary bonuses and commissions can account for up to 10% of the salary threshold (10% of $43,888 = $4,388). These bonuses and commissions must be paid on an annual or more frequent basis.
What about companies that do not keep track of the hours of salaried employees. Does this require those hours to be reported and tracked now? I know Dominion Payroll has flat hours built in for salaried employees - does this change that?
If the employee will be classified as non-exempt (eligible for overtime), then hours must be tracked to determine if/when the employee works in excess of 40 hours per workweek. This will apply to all non-exempt employees regardless of if they are hourly or salaried.
When re-evaluating job descriptions, what criteria should be used?
Since job titles do not determine exemption status, our recommendation is to ensure job descriptions are up to date and indicate the actual duties of the position. When performing the analysis to determine who is exempt or non-exempt from overtime, the job descriptions should indicate the correct FLSA status.
If an employee meets the salary basis test and is compensated in excess of the new salary thresholds, they could be exempt from overtime if they meet the definition of one of the exemption categories outlined in the DOL Fact Sheet linked below.
https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime
How does this affect sales staff?
According to FLSA regulations, non-discretionary bonuses and commissions can account for up to 10% of the salary threshold (10% of $43,888 = $4,388). These bonuses and commissions must be paid annually or more frequently.
If the salesperson meets the salary threshold, they could potentially be exempt from overtime if they meet the definition of the “Outside Sales Exemption.”
To qualify for the outside sales employee exemption, all of the following tests must be met:
What about compensatory time? Is it required to use weekly now or can they use them on a monthly basis instead of overtime pay?
Under the FLSA, compensatory time is generally allowed only for public sector (government) employees. The FLSA mandates that private sector employers must compensate non-exempt employees for overtime hours worked with overtime pay at a rate of at least one and a half times the employee's regular rate of pay.
Certain states such as Arizona, California, Alaska, Colorado, Illinois and Oregon have state legislation in place that may authorize a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, to provide compensatory time off, with certain limitations, in lieu of monetary overtime compensation.
Employees paid hourly who could be salary, can you be fined for that too?
There is no legislation that dictates if an employee or position is hourly or salaried. Whether an employee is compensated on an hourly or salary basis is solely the decision of the employer. Both hourly and salary employees can be non-exempt or eligible for overtime.
Regarding overtime pay, employers would not be out of compliance for paying employees on an hourly basis; any punitive action would only arise should the employee not be paid at 1.5x for any hours worked beyond a 40-hour workweek.
Is there still a 6-month grace period for the July 1 deadline?
The rule itself does not include any grace periods, so employers need to be prepared to comply with the respective salary threshold increases on July 1st and then eventually on January 1st. The two phase approach is ultimately the “grace period” in terms of implementation. We don’t anticipate the DOL will be knocking on doors on July 2nd, that being said, there is nothing to stop non-exempt employees from making a wage claim if they are not receiving overtime pay as required by the FLSA.
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