NEW FEDERAL OVERTIME LAW—HOW DOES IT IMPACT YOUR BUSINESS?
In 2014, President Obama directed the United States Secretary of Labor to update federal overtime regulations to reflect the original intent of the Fair Labor Standards Act (FLSA), and to simplify and modernize the rules so they would be easier for both businesses and workers to understand and apply. The U.S. Department of Labor (DOL) has now issued final rules which go into effect on December 1, 2016, giving employers five months to prepare.
These rules apply to most hourly and salaried workers, but not to some white collar workers whose salaries and duties exempt them from the overtime pay requirement. In the aviation arena, it is our view that the new overtime rules do not apply to most pilots flying under Federal Aviation Regulations (FAR) Part 121 and Part 135 certificated carriers, but pilots flying under FAR Part 91 are entitled to overtime unless they fall into one of the other exemptions discussed below. We base our conclusion on that portion of the FSLA that exempts from overtime “any employee of a carrier by air subject to the provisions of Title II of the Railway Labor Act,” which includes “every common carrier by air engaged in interstate or foreign commerce, and every carrier by air transporting mail for or under contract with the United States Government, and every air pilot or other person who performs any work as an employee or subordinate official of such carrier or carriers, subject to its or their continuing authority to supervise and direct the manner of rendition of his service.”
The new rules will entitle most salaried white collar workers earning less than $913.00 a week ($47,476.00 a year) to overtime pay, including workers who are not subject to the exemption for pilots referenced above. Overtime must be paid at time-and-a-half for any hours worked beyond the standard 40-hour workweek. By increasing the number of workers who are eligible for overtime when they work more than 40 hours in a week, employers will have a choice: They can either increase their employees’ salaries to at least the new salary threshold; pay workers the overtime premium for extra hours; or limit their work to 40 hours in a week.
If an employer wants to establish that white collar workers are not entitled to overtime pay, the employer will have to establish two things:
1. That the employee’s salary is above the $47,476.00 threshold; and
2. Ensure that they have the type of job that Congress meant to exclude from overtime protections by applying the “duties test.” In order to pass the duties test, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations. Not all salaried white collar employees qualify for the white collar exemptions. Their primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees under the following test.
Federal Duties Test
Executive Exemption
An executive exemption may apply if the employee:
• regularly supervises two or more other employees;
• has management as the primary duty of the position; and
• has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).
“Mere supervision” is not sufficient. In addition, the supervisory employee must have “management” as the “primary duty” of the job. The FLSA Regulations contain a list of typical management duties. These include:
•interviewing, selecting, and training employees;
•setting rates of pay and hours of work;
•maintaining production or sales records;
•appraising productivity, handling employee grievances or complaints, or disciplining employees;
•determining work techniques;
•planning the work;
•apportioning work among employees;
•determining the types of equipment to be used in performing work, or materials needed;
•planning budgets for work;
•monitoring work for legal or regulatory compliance; or
•providing for safety and security of the workplace.
Professional Exemption
The job duties of the traditional “learned professions” are exempt. These include lawyers, doctors, dentists, teachers, architects, clergy, registered nurses, accountants, engineers, actuaries, scientists, pharmacists, and other employees who perform work requiring “advanced knowledge” similar to that historically associated with the traditional learned professions.
Professionally exempt work means work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished from (more “academic” than) the mechanical arts or skilled trades.
Administrative Exemption
Some “administrative” employees are exempt, but making this determination is often difficult.
The regulatory definition provides that exempt administrative job duties are:
• office or non-manual work, which is
• directly related to management or general business operations of the employer or the employer’s customers; and
• a primary component of which involves the exercise of independent judgment and discretion about matters of significance.
There are, of course, many gray areas. For example, a Chief Pilot could be exempt under the executive exemption if his/her primary duty qualifies as “management . . . of a customarily recognized department or subdivision” of the employer’s enterprise or department. “Primary duty” is defined in 29 C.F.R. § 541.700 as “the principal, main, major or most important duty that the employee performs.” The amount of time spent performing exempt work can be a useful guide in determining the primary duty of an employee, but time alone is not the sole test. An employee who spends less than 50 percent of his/her time performing exempt managerial duties may still meet the primary duty requirement of the executive exemption if other factors support that conclusion, as discussed in 29 C.F.R. § 541.700(b).
According to the DOL’s Wage and Hour Division, factors to consider when determining the primary duty of an employee include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and wages paid to other employees for the kind of nonexempt work performed by the employee.
In addition to the exemptions listed above, “Highly Compensated Employees”, those making over $134,000.00 as of December 1, 2016 (up from the previous $100,000.00), are not eligible for overtime if the employee’s primary duty includes performing office or non-manual work and the employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
How the Law Impacts California Employers:
Until this U.S. Department of Labor change, California’s annual threshold for overtime exemption was $41,600.00, higher than existing federal law. Now that the federal threshold is higher, California employers must use the $47,476.00 figure to determine which employees are eligible for overtime pay and keep track of both federal and California changes to the threshold to be certain they use the higher of the two.
California employers must also apply a “duties test” to determine if the employee is exempt, however, the California test is slightly different. In addition, they must follow California’s 51% rule. This rule requires employers seeking to avoid overtime pay for executives to make sure the executive’s tasks are performed at least 51% of the time that they work in order to be classified as exempt.
California’s Duties Test:
Executive Exemption
A California employee qualifies for the executive exemption if the employee:
• Primarily manages the business;
• Regularly exercises discretion and independent judgment;
• Regularly directs the work of two or more employees;
• Has the authority to hire/fire and advance/promote employees;
• Earns a monthly salary equal to at least two times the state minimum wage for full time-employment (i.e., 40 hours a week).
Administrative Exemption
A California employee qualifies for the administrative exemption if the employee:
• Primarily performs non-manual work directly related to the general business operations of the organization;
• Regularly exercises discretion and independent judgment;
• Has obtained special training, experience or knowledge;
• Earns a monthly salary equal to two times the California minimum wage for full-time employment.
Professional Exemption
A California employee qualifies for the professional exemption if the employee:
• Has a license or certification by the state of California;
• Works primarily in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting;
• Has advanced knowledge typically acquired by a course of specialized study/apprenticeship;
• Regularly exercises discretion and independent judgment;
• Earns a monthly salary equal to at least two times the state minimum wage for full-time employment.
In addition, California also recognizes exemptions in certain circumstances for “outside sales,” “commissioned salespersons,” and “computer software occupations.”
Lastly, if California law is more favorable to employees, employers must comply. For example, federal law requires overtime pay based on a 40-hour work week. California law, however, also requires employers to pay overtime for hours worked in excess of an 8-hour workday.
If you are an employer, it is imperative that you properly assess overtime for all employees. The guidelines contained in this article are by no means exhaustive, nor should they be relied upon as a legal opinion or advice for your particular circumstances. If you would like to further information, please contact Douglas Stuart at Aerlex Law Group, dstuart@aerlex.com