Edward a father of a family of four is an employee who works in a small beverage company in Los Angeles, United States. He is expected to work 40 hours a week (being the standard working hours for an employee) but owing to insufficient number of employees and in a bid to make extra money, he sometimes works for more hours thereby exceeding the normal working hours. These extra working hours by Edward is known as overtime.
Literally, a work overtime is the number of extra hours an employee works beyond normal hours in a workweek. The standard work hours for an employee is 40 hours a workweek out of the total 168 hours: 7days x 24 hours. Hours other than this, is an overtime and therefore the employee is expected to be paid for these extra hours once qualified for. But there are some certain laid down rules by the FLSA as regards overtime. These rules are quite detrimental to quite a number of American employers and according to the United States Department of Labor, out of every 130 million US worker, about 50 million are exempt from overtime laws (U.S Department of Labor, Wage and Hour Division, 1998).
FLSA Overtime Pay Rules
According to the FLSA an acronym which stands for Fair Labor Standard Act, the overtime pay for eligible employees is one and one-half (1.5) times their regular working hour rate of pay. For instance, if Edward’s hourly income is $15 per hour, his overtime hourly income will be $22.5: $15 per hour x 1.5 = $ 22.5 per hour. Overtime pay earned in a certain workweek is mandated by the FLSA to be paid on the regular pay day for the pay period in which the wages were earned.
In the United States, the FLSA act of 1938 created two categories of employees namely the exempt and the non-exempt. As opined by this law, employers of labor are mandated to pay overtime to only non-exempt employees. Some examples of employee types that are exonerated from overtime payment are employees of some small newspapers, newspaper delivery persons and babysitters, certain transportation employees, farm workers on small scale farms, administrative, executive, and professional employees.
This law also states that independent contractors are not eligible for an overtime pay and therefore not protected by the FLSA. There are numerous factors that determine whether a worker is an employee, who might be entitled to overtime payment, or an independent contractor, who would not be so entitled. The employment agreement stating that a party is an autonomous contractor does not make it necessarily so. The nature of a job determines if an employee is entitled to overtime pay, and not the employment status or the field of work.
Since the evolution of this act, the following three tests are required for the exemptions to be applied:
- The employee must be paid a stable salary.
- Amount of salary paid must meet a minimum amount.
- Employee’s job duties must basically involve administrative, executive, or professional duties as defined by the regulations.
According to this law, if Edward our fictional character, works his way up and becomes an administrative officer in this same company and still works extra hours, he still might not be eligible for overtime pay owing to his low income rate.
Department of Labor (DOL) Proposed Rule Making on Overtime
President Barack Obama having reviewed this FLSA act of 1938 and concerned with the discrimination on which employer of white collar job should or shouldn’t be legible for overtime payment, signed a memorandum directing the Department of Labor to update the FLSA act of 1938. This was signed in March 14, 2014. In this, he directed the DOL to update the various regulations implemented by the FLSA especially on the bases of who is eligible to receive overtime pays. This memorandum instructed the DOL to look for ways of modifying and modernize the current regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
Following this issuance by Mr. President, the DOL embarked on an extensive outreach program, conducting listening sessions in states several states, regions and localities. These sections were attended by a wide range of employees, employers, business associations, non-profit organizations, employee advocates, unions, state and local government representatives, tribal representatives, and small businesses.
During these sessions debates were made on:
- What the appropriate salary level for exemption should be.
- What the faith of an individual would be if any changes were made on duties.
- How various regulations guiding these rule could be simplified.
This outreach by the DOL, was of great help as it aided in shaping the proposed rule. On salary basis, there were no proposed changes to the requirement that workers be paid on a salary basis.
On salary level test, the DOL proposed to increase and elevate the standard salary level of any worker to qualify for exemption from the FLSA overtime requirements as an executive, administrative, or professional employee from $455 a week or $23,660 a year to $913 a week or $47,476 a year. A mechanism for annually updating the minimum salary of a worker is being developed. The DOL aims at ensuring that annual salary requirement in 2016 will be approximately $913 a week, or $50,440 a year. The department opined that the current salary level threshold for exemption of $455 per week, or $23,660 annually, is below the poverty threshold for a family of four. Though it isn’t at the moment considering including discretionary bonuses on its salary level test.
Presently, the various duties required by an Administrative Employee, Executive Employee, Professional Employees, and Salesman are yet to be adjusted by the Department of Labor as it is still seeking comments as to whether the duties tests should be updated.
The new policy of the DOL when implemented would also ensure that at least 44% of all workers are covered by the overtime protections of the FLSA automatically, as against its initial 8%. This will enable Edward or any other small income manager to get paid for overtime.