Asked and Answered


Kurt Graham on Overtime Law

By Steve Thorpe
Legal News

Last spring the U.S. Department of Labor released its long anticipated final regulations regarding the “white collar” exemption for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA). Last week, Michigan joined 20 other states in a lawsuit aiming to prohibit the mandatory overtime pay rule, which is scheduled to go into effect on December 1. Employers would be required to pay overtime for any salaried employee earning less than $47,476. Currently, that overtime rule starts at $23,660. The states are arguing that this law will hinder job creation. Kurt Graham of Mika Meyers PLC specializes in advising private and public sector employers, including school districts and municipalities, with regulatory compliance issues in order to avoid liability under various state and federal employment laws. He has appeared before numerous administrative agencies and has also lectured on employment and school law topics such as workplace harassment, OSHA/MIOSHA inspections, investigating and documenting employee misconduct, social media in the workplace, wage/hour compliance, the FMLA/ADA, the Michigan Concussion Law, and how to effectively manage in a union environment.

Thorpe: Can you give us a brief timeline of the issue?

The overtime rules were proposed by the U.S. Department of Labor (DOL) in July 2015. After a notice and comment period where an opportunity was given to the public to express support or opposition to the proposed rules, the final rules were published by the DOL on May 18, 2016. The new overtime rules take effect Dec. 1, 2016. The DOL estimates that 4.2 million workers will no longer qualify as being exempt from overtime pay once the new rules take effect. As a result, employers should be undertaking efforts now to ensure they are able to comply with the new rules starting Dec. 1, 2016.

Thorpe: What is the biggest change under the new rules?

The biggest change is the increased salary threshold for determining if an employee is exempt from overtime pay under the FLSA “white collar exemptions”:  the executive, administrative, and professional exemptions. The DOL has essentially doubled the salary threshold from the prior amount (last established in 2004) so many employers will be forced to either pay higher salaries to salaried workers in order to exempt them from overtime pay under one of the white collar exemptions, or pay overtime pay to those salaried workers who no longer qualify as exempt and work over 40 hours in a workweek. As discussed below, there will be additional recordkeeping obligations for employees who were previously classified as exempt but will change to non-exempt.

Thorpe: Which employees are still exempt?

That depends. The white collar exemptions are the only FLSA exemptions the new overtime rules apply to. In order for an employee to be exempt from overtime pay under one of the white collar exemptions,  the employee must be paid on a salary basis, earn a salary at or above the new salary threshold, and satisfy the required “duties” test under the applicable exemption. Employers need to understand, however, that employees may still be exempt under other exemptions that exist under the FLSA regardless of their salary level. For example, teachers and outside salespersons are groups of employees who do not have to satisfy the salary threshold of the new rule in order to be exempt from overtime pay.

Thorpe: Describe some potential “land mines” employers should avoid?

1. Employers cannot forget that in order for employees to qualify for one of the white collar exemptions from overtime pay, they must still pass a “duties” test. It is not enough to simply pay an employee a salary above the new salary threshold. That, by itself, does not make the employee exempt. Therefore, if an employer is going to pay an employee a salary above the new threshold, the employer should analyze the employee’s duties to make sure the position satisfies the applicable “duties” test before classifying him/her as an exempt employee under one of the white collar exemptions.

2. Employers will have to ensure that for workers who are classified as non-exempt and eligible for overtime pay that they maintain records of hours worked and wages paid for those employees regardless of whether they are paid on a salary or hourly basis. A salaried worker can still be entitled to overtime pay (i.e., if they don’t have a high enough salary or they don’t pass the applicable “duties” test) so those that are not exempt from overtime must have their hours tracked. All employees who are earning overtime should be required to record their hours worked so an employer can comply with the FLSA record keeping requirements.

Thorpe: Michigan Attorney General Bill Schuette made Michigan a party to the suit. What prompted that move?

I can’t speak for the attorney general but I suspect he joined the challenge because he agrees with the other plaintiffs’ position that the rules will impact the state’s economy due to increased labor costs and that the DOL exceeded its rule making authority. The lawsuit seeks a declaratory ruling that the rules are unlawful and claims that the DOL acted outside of its Congressional authority by establishing future salary thresholds through rulemaking.  

Thorpe: What do you expect to happen on the legal front between now and the December 1 rollout of the new regs?

Twenty one states, including Michigan, are seeking to block enforcement of the new rules before they take effect on Dec. 1, 2016. I do not believe that the lawsuit will delay or block the new rules from taking effect as scheduled on Dec. 1, 2016. The lawsuit claims, in part, that the rules are invalid due to language stating the salary threshold will be updated every three years without Congressional authorization. Since that portion of the rules won’t actually impact employers until Jan. 1, 2020, there is no need for a court to grant an injunction now or stop enforcement of the rules prior to Dec. 1, 2016. If that portion of the rule is found invalid after Dec. 1, 2016, I anticipate the court will sever that invalid portion from the rule but retain the remaining portions of the rule – most significantly the new $47,476 salary threshold.  As a result, employers should still prepare for the rules taking effect on Dec. 1, 2016.