An update to the Fair Labor Standards Act and What It Means for You

The following post is part of our Law Student Blog Writing Project, and is authored by Mark Ashley Hatfield, a Juris Doctor student at the University of Kentucky College of Law.

An update to the Fair Labor Standards Act and What It Means for You

The American workforce has not always been protected in the same manner as it is today. Perhaps some of you remember, or have heard stories passed down from relatives about days where pre-teen children worked long hours to help their families, or times when people endured horrible working conditions while being paid very minimal wages. Those types of situations slowly began to change in 1932, when former Supreme Court Justice, Hugo Black, then a Senator from Alabama, drafted the first version of worker protection laws. Black’s proposal was initially met with indifference, but a slightly modified version of Black’s laws was later set into effect in 1940. Those regulations have since been known as the Fair Labor Standards Act (FLSA).

The FLSA established the 40-hour work week; mandated time-and-a-half pay for any hours worked over 40 hours in a given week; created a federal minimum wage; and eliminated the employment of most minors. Additionally, the FLSA sets a salary threshold and uses a duties test (both of which will be discussed in further detail below) to determine who is entitled to its protections and for 12 years that salary threshold has gone unchanged. However, in 2014, President Obama directed the Secretary of Labor to update the overtime regulations. Under that directive, the Department of Labor produced some modifications, including an update of the salary threshold, to the FLSA regulations that will have a strong impact on middle class workers. The “Final Rule” for the Fair Labor Standards Act was signed into law on May 18, 2016 and becomes effective on December 1, 2016.

In addressing these recent changes, this article will attempt to better clarify the overtime portion of the FLSA; particularly the fact that, in general, employees are entitled to overtime pay for any hours worked over 40 in any given work week unless they meet one of the various statutory exemptions. In addition, this article will touch on how these new updates may affect bankruptcy filings and Workers’ Compensation claims.

Most of you are probably familiar with the terms exempt, and non-exempt, employee. If an employee is non-exempt she is covered by the FLSA regulations and must be paid overtime for any hours worked over 40 in any given work week. However, if certain criteria are met, an employee can be deemed exempt; meaning she is not covered by the FLSA regulations and is not entitled to overtime pay regardless of the number of hours she works.

The most common exemptions employees fall under, are what the FLSA considers “white-collar” exemptions, and affect mostly middle class workers. Generally, an employee must meet three requirements to be considered exempt under these exemptions:

1. The employee must meet the salary threshold. Beginning in 2004 that salary threshold was set at $455/week (i.e., $23,660 annually). However, with the most recent modifications, that threshold will increase to $913/week (i.e., $47,476) annually;
2. The pay an employee receives must be received on a “salary basis.” This term, defined in the FLSA, basically limits the types of deductions that can be made from an employee’s salary which is required to be a predetermined amount; and
3. The employee’s “primary” (i.e., main or most important) duty must be recognized as exempt under the applicable exemption(s).

It is important to note that the salary threshold does not apply to all exemptions, including the exemption for teachers and outside sales employees. Still, the threshold is increasing nearly two-fold so it is important for employees to take note, especially anyone earning between $23,661 and $47,275. These employees will go from being exempt employees to non-exempt employees; meaning they will be entitled to overtime pay for any hours worked over 40 hours in a given work week.

This additional overtime will likely give rise to a change in bankruptcy filings as well. If your status does change from exempt to non-exempt, and you continue to work the same number of hours, more overtime pay will make it more likely that you will have to file a Chapter 13 bankruptcy rather than a Chapter 7. This is because you must be below median income for your household size to qualify for Chapter 7 bankruptcy and the increase in income will likely push you over the median income threshold. This is significant because where Chapter 7 bankruptcy results in a ‘clean slate’ for the debtor, Chapter 13 filings require a debtor to propose a repayment plan to his creditors wherein he offers to pay off all or part of his debts from the future income he expects to receive.

Another important issue to be aware of is the impact the additional overtime pay may have on Workers’ Compensation claims. For example, modifications are unlikely to have an effect on Workers’ Compensation claims in Kentucky because Kentucky rules do not allow overtime to be calculated into the average weekly wage. This means that Temporary Total Disability and Partial Permanent Disability awards will not be affected. Most states mirror one another in terms of Workers’ Compensation claims, but it is always important to be aware of your own state’s laws in these types of situations.

Additionally, the FLSA goes so far as to define particular duties tests for certain professions. For example, the learned professions of chefs, nurses, and dental hygienists have their primary duties defined in the FLSA regulations. It is important to note that even if your salary is increased to meet the new threshold, you are not automatically deemed exempt. As was the case before the most recent updates, you must also pass the duties test; meaning your primary work duty must be one that is classified as exempt under the FLSA regulations. An example of this can be found in the ‘Administrative Exemption’ described in the FLSA. If you are a Human Resources manager making $48,000, you are technically under the administrative label and you have satisfied the new salary threshold. However, if your primary work duty is not the “performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” as the administrative exemption requires, you will not qualify as an exempt employee; instead you will be non-exempt, entitled to overtime pay.

The modifications to the FLSA will have an impact on many of America’s employees. If you are one of those workers, it is vital that you be proactive about your situation. Ask your employer about your exempt or non-exempt status; ask about timekeeping duties; ask about possible new or diminishing responsibilities; and if the answers are not clear to you, consult with an attorney. With the modified rules going into effect at the beginning of December 2016, the sooner you become educated on your employment situation, the better.