Department of Labor Final Rule Changes Overtime Regulations

Dramatically Expanding Who is Entitled to Overtime Pay

On May 18, 2016, the Department of Labor’s Wage and Hour Division announced the upcoming publication (on May 23, 2016) of a Final Rule intended to update and modernize the regulations governing the exemption of executive, administrative and professional employees from the overtime pay protections of the Federal Fair Labor Standards Act (FLSA).  Among other things, this Final Rule nearly doubles the salary level to qualify for these FLSA exemptions. 

The current salary threshold is $455 per week ($23,660 per year).  On December 1, 2016, the salary threshold will nearly double and increase to $913 per week ($47,476 per year).  This means that every employee who are currently exempt from overtime who make less than $47,476 per year will automatically qualify for overtime under the new rules.  This change can have significant impact on EMS employers nationwide and requires all employers who treat employees as exempt from overtime to conduct a comprehensive review of those positions before the rules go into effect. 

Since 1940, the Department of Labor has generally required that employees meet all three of the following tests in order to be exempt from being entitled to overtime pay:

  • The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  • The amount of salary paid must meet a minimum specified amount (the “salary level test”); and
  • The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).  The changes to the regulations mean that many managerial-level EMS employees may now be entitled to overtime because their salaries will not meet the salary level test in the new regulations.

In the past, the salary level test was something to which most of us never paid too much attention.  This is because practically everyone met the salary test, as it was set below the poverty line for a family of four.  Instead, we largely focused on whether the employee’s duties would qualify him or her for overtime.  Now, it is important for EMS Agencies to look at their currently overtime-exempt employees who are receiving a salary of less than $47,476 per year.  If they are not receiving a salary of at least that amount, the employer has three options:

  1. Increase the employee’s salary to no less than $47,476 per year;
  2. Pay the employee overtime for all hours worked over 40 in a workweek beginning on December 1, 2016; or
  3. Ensure that the employee does not work more than 40 hours in a workweek to avoid paying overtime.

The new rules will pose many chanllenges if the EMS employer has supervisors and other employees (such as administrators) who may fit one fo the overtime exemptions.  If these employees must now be classified as "non-emempt" due to the much higher salary threshold to meet the exemption, it means that they must be paid for "all hours worked" and typically must also receive overtime pay.  Since many supervisory and administrative staff work at home, answer phone calls, and perform other duties outside the "normal"work day, the employer may need to track all this time and pay employee appropriately - if the employee no longer meets the overtime exemption under the new rules.  this could be a real burden for the EMS agency to track that time and to properly calculate the pay that is due the employee.

The Final Rule also includes a mechanism to automatically update the standard salary level requirement every three years based on wage growth over time.  Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census Region.  This is how the Department of Labor arrived at the $47,476 per year figure.  The Department of Labor will post the new salary levels 150 days in advance of their effective date, beginning August 1, 2019.  For those looking ahead, the salary level in 2020 is estimated to increase to $51,168.

The Final Rule will allow up to 10 percent of the salary threshold to be met by non-discretionary bonuses, incentive pay, or commissions, provided that the employee receives these bonuses on at least a quarterly basis.  Non-discretionary bonuses, incentive pay, and commissions will not count toward the salary threshold for highly compensated employees.  A highly compensated employee is currently one who makes at least $100,000 per year.  Highly compensated employees have to satisfy a more relaxed duties test to be exempt from overtime.  Under the new rules, the threshold for highly compensated employees will increase to $134,004 on December 1, 2016.  This highly compensated employee salary threshold will also increase every three years.

The Final Rule does not make any changes to the duties test for each of the three key exemptions that apply to EMS agencies:  the administraive, executive and professional exemptions.  But now is the time to not just evaluate the salary amounts paid to exempt employees, but also to make sure that they are performing exempt duties that would qualify for the exemption to apply.  The bottom line is that EMS Agencies with salaried employees who currently earn less than $47,476 per year need to figure out what they are going to do to bring their Agency in compliance with the new requirements by December 1, 2016.  The Department of Labor estimates that these changes will affect approximately $4.2 million currently-salaried workers, and that an extra $1.2 billion a year will go into these workers’ pockets.