Avoid overtime pitfalls. New rules have arrived. State and federal law regulate wage and hour regulations.  The Fair Labor Standards Act (“FLSA”) is the overarching federal legislation that regulates minimum wage, overtime, equal pay, recording keeping, and hours requirements related to child labor.  Under the FLSA, employees are separated into two basic categories: non-exempt and exempt.  Exempt refers to the employees of covered entities who are members of large categories of “white-collar” jobs who are NOT entitled to the minimum wage and overtime protections of the FLSA.  An employee is exempt if her employment meets certain tests, generally including a salary test (paid a certain amount weekly in the form of salary) and a duties test (employer performs certain duties). Any employee who is not exempt is considered a “non-exempt” employee and is entitled to minimum wage and overtime protections.

Non-exempt wage employees are paid an hourly wage and are entitled to be paid a wage of one and a half times the regular hourly wage for each hour employed over 40 hours in a work week.  29 U.S.C. § 207(a)(1); A.R.S. § 23-392(A)(1).  In 2015, the Department of Labor (DOL) announced that it would revise the regulations related to the salary and duties tests that determine whether an employee is exempt because the Obama Administration determined that too many relatively low paid workers were falling into the exempt category and losing the opportunity for overtime pay.  The DOL invited public comment and on May 18, 2016, announced the new rules.  These rules will have far reaching impact on school districts and charter school when they go into effect on December 1, 2016.

Until the new rules go into effect, employees meet the salary test if they earn at least $455/week.  Under the new rules, an employee must earn at least $913/week ($47,476/year) to meet the salary test that is required for most categories of exemption.  The DOL has now linked that salary test the 40th percentile of earning of full-time salaried workers in the lowest-wage Census Region (for regular employees) to be determined every three years.  Therefore, the required salary amount will likely go up every three years.  The practical result is that some school district employees who have traditionally been exempt employees will require substantial raises to meet the $913/week salary test or they will need to be reclassified as non-exempt and paid overtime for any hours they work over 40 in a week.  One significant change is that under the new rule, for the first time since the FLSA was passed, employers can use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary level.  While obviously most school district employees do not receive bonuses, this does mean that 301 monies or anything similar could account for up to 10% of that $47,476.

There are two important exceptions to the salary test requirement for educational institutions.  Teachers do NOT need to meet the salary test in order to be exempt.  Therefore, if the school pays teachers less than $913/hour, those teachers are still exempt and are not entitled to overtime pay. In addition, there is a special educational entity administrative exemption that allows educational institutions to categorize employees who meet the administrative exemption for educational institutions as exempt so long as their salaries are equivalent to a starting teacher salary at that institution.  Prior to relying on the educational entity administrative exemption for an employee who does not earn at least $913/week, consider obtaining a legal opinion as to whether the employee meets the administrative exemption tests.

The DOL announced no changes to the duties test.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Avoid Overtime Pitfalls, or any other personal injury, please feel free to contact 480.461.5300,  log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.