U.S. Labor Department Issues New Regulations Governing Worker Overtime Pay

New federal rules issued today by the Obama Administration raise the salary threshold under which many workers qualify for overtime. The WASB will hold a Webinar on the Fair Labor Standards Act and the impact of the new rules on schools on June 22, 2016 from 12:00 noon to 1:00 p.m. Click here for registration information.

The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt.  Under the new standard most salaried workers earning up to $47,476 a year must receive time-and-a-half overtime pay when they work more than 40 hours during a week. That’s more than double the current salary threshold ($23,660). (See Department of Labor news release.)

The revised U.S. Department of Labor rule, which will take effect on Dec. 1, 2016, means that employees who currently earn more than the current threshold — $455 per week or $23,660 annually — but less than $913 per week or $47, 476 annually, need to be reclassified as nonexempt and will be entitled to overtime pay when they work more than 40 hours in a workweek.

Although teachers are exempt from the overtime rule, other school district employees not directly engaged in academic instruction, training or directly related administrative functions, may be subject to the new rule.  Salaried school personnel possibly affected by the new rules include food service directors, building and grounds supervisors, information technology directors and administrative assistants. The new rules won’t affect hourly non-exempt employees, to whom districts must already pay overtime.

Federal law provides two ways for most salaried workers to become eligible for overtime. The first is through a so-called “duties test” that assesses whether or not the workers are bona fide executives, administrators or professionals, meaning they spend most of their time exercising some decision-making authority or professional responsibility. If not, they are supposed to be eligible for overtime pay.

The second is more of a hard-and-fast standard, which sets a salary level to determine eligibility for overtime, regardless of duties.  So even for employees who are legitimately managers, if their salary is below the cutoff, they must be paid overtime.

For school districts, concern has been expressed that tight state and local budgets could translate to difficulty in absorbing cost increases resulting from the changes, some employees with salaries below the threshold who do not currently qualify for overtime could become eligible for overtime under the new rules.

The change could play out in schools in different ways. Once the rule goes into effect on Dec. 1, 2016, some school employees will receive more pay when they work overtime, but others may end up working fewer hours if school districts move to limit their time at work. In other cases, school districts may decide to increase the salaries of some workers to push them over the salary basis cutoff so that the districts will not have to pay overtime or hire additional workers after limiting hours for existing employees.

In addition, for the first time, the Labor Department will index future salary thresholds to inflation every three years. The threshold would next be updated in Jan. 2020. At that time, the maximum salary to qualify for overtime pay is estimated to increase to $51,000.

Under these new rules, every three years the threshold will rise to the 40th wage percentile for full-time salaried workers in the country’s lowest-wage region (now, the Southeast). Previously, raising the salary threshold required the department to propose a new regulation — a politically and bureaucratically difficult process.