When an employee is considered “exempt” per the Fair Labor Standards Act (FLSA), this means that you as the employer do not have to pay overtime. Today, an executive, administrative or professional employee can only be considered exempt from overtime if he or she is paid at least $455 per week or $23,660 per year, and meets certain other tests. If this seems like a low threshold, former President Barack Obama agreed with you, and under the Obama administration, the Department of Labor (DOL) was directed to update and modernize the regulations governing this exemption, and issued a rule that was to take effect December 1, 2016. According to a recent Fortune magazine article, the rule “would have doubled to $47,500 the maximum salary a worker [could] earn and still be eligible for mandatory overtime pay. The new threshold would have been the first significant change in four decades.” 1)
However, on November 22, 2016, Texas U.S. District Court Judge Amos Mazzant—coincidentally appointed by President Obama—granted a preliminary injunction in a lawsuit filed by an alliance of 21 states and several industry groups that effectively blocked the proposed rule. Therefore, the old DOL standard still applies, and under the so-called “white-collar overtime exemption,” you can avoid paying overtime in many situations.
While a district court preliminary injunction can at times be a death sentence for a rule, it is not certain how the Trump administration feels about the issue, and it may support a rise in the minimum salary level. If this happens, employer implications could be significant.
In addition to the potential increase in minimum salary, employers must always be ready to demonstrate that employees they designate as “exempt” meet one of the “white collar” or other exemptions, and demonstrate that workers that they designate as “independent contractors” are not disguised “employees” for purposes of the law. They must also keep appropriate time records for all non-exempt employees. Failure to comply with the FSLA and DOL regulations can be costly. If only one of your employees becomes disgruntled, believes they were not paid in accordance with the overtime rules, and decides to sue, that can be the start of a collective action where other “similarly situated” employees can join the lawsuit against you after it has been filed. Defending a lawsuit can quickly become costly, and if you lose, you could be forced to remit back pay along with attorney fees, liquidated damages and court costs in some cases.
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If you do have a compliance question, or if you would like a review of your compensation policies be sure to email or call us at 512-320-0601. We are a full-service startup-centric law firm well equipped to handle your needs.
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