Federal Overtime Law: FAQ for Payroll Providers and Human Resource Consultants

Federal Overtime Laws FAQ
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 New Federal Overtime Frequently Asked Questions

The Department of Labor (DOL) recently passed updated Federal Overtime laws to the “white collar” rules under the Fair Labor Standards Act (FLSA), but many payroll providers and Human Resource consultants still have questions about the professional employee organizations (PEOs) that they advise. The new FLSA guidelines increased the minimum exempt salary for exempt employees to $47,476. This salary amount increases every three years. Additionally, exempt employees must meet a duties test to be classified as exempt. The new guidelines take effect in December, 2016.  SwipeClock has compiled some of the most popular and hard to find answers as a guide for SwipeClock payroll partners.

Are non-profit organizations exempt from the new Federal Overtime Ruling?

There are several aspects of the FLSA ruling for non-profit organizations (501(c)3). First, non-profit organizations that participate in business activities of $500,000 per year, or more, referred to as enterprise coverage, are covered under the FLSA rules. Business activities and the $500,000 in income does not apply to charitable donations. However, it does apply to all business activities, sales, and services of the non-profit.  Additionally, certain nonprofit organizations are deemed as “enterprise coverage,” regardless of how much income they bring in in business activities. The classifications of enterprise coverage falls to include hospitals, schools and preschools, government agencies, and medical or nursing services organizations.

These organizations are considered enterprise coverage because they provide business applicable activities.

If the non-profit does not fall under the enterprise coverage, there is still a chance that individual employees may be covered the new federal overtime laws. Individual coverage applies to any employee that participates in interstate commerce or in the production of goods for interstate commerce. If the employee calls other states, ships to other states, or transports goods or persons to other states. This coverage is applicable, even if the activities are not for a business purpose.

One exception that not for profit organizations have is in their ability to receive volunteer hours. Volunteers can donate hours to a non profit as long as the non profit is not their employer non profit. Those hours do not fall under FLSA. 

Are small businesses exempt from Fair Labor Standards Act?

As a general rule, small businesses or their employees will be held accountable under FLSA. Any business with sales of $500,000 or more is automatically covered under FLSA. Additionally, certain businesses automatically fall under FLSA. These organizations include hospitals, residential care facilities, schools for children (gifted or disabilities) government organizations, and schools of any age, including preschools.

If a business does less than $500,000 in total sales, it is probable that the employees have individual coverage under FLSA. Any employee that engages in any type of interstate commerce has individual overtime rule coverage. This includes employees that travel interstate, transport or ship any type of goods across state lines, makes calls interstate, sells, produces, or manufactures goods for interstate commerce. Interstate commerce also includes any interstate communication, mail or email, ordering supplies interstate, even if it’s from Staples, and any type of accounting, charges or bookkeeping across state lines.
It is vital for payroll companies to accurately advise their business partners in the specifics and rules of FLSA, especially if a company believes that they may be exempt.

Can an employee that is exempt, but makes less than the salary threshold, under the new overtime rules, still be classified as exempt?

No. Under the new rules an employee must meet both the salary test and the duties test to be classified as exempt. Even though an employee meets the duties test and manages two or more employees, they must also make a salary $47,476 or more.

If an employee was previously classified as exempt and the employer reclassifies the employee as non-exempt in order to comply with the new Federal Labor Laws, will the employer be responsible for past unpaid overtime?

If the employee was previously properly classified as exempt under the old labor laws, it is not likely that the employer would be liable for any unpaid overtime under the old laws. However, employers should take care to properly classify employees. An employee who was previously exempt and is reclassified as non-exempt may view the change in classification as proof that they should have received overtime previously. This could lead to litigation from reclassified employees. Employers should be meticulous, careful and specific when evaluating wages, classification and employer handbooks. They should also advise careful with employment counsel to avoid potential problems with employees. 

Let SwipeClock Help You.

As payroll providers and human resource advisers seek to bring their clients and business PEOs  into compliance with FLSA, accurate reporting from timekeeping and payroll tools is essential. SwipeClock provides simple solutions that work for both large and small employers. SwipeClock is a premier provider of timekeeping and workforce management tools for payroll companies. Partners of SwipeClock love the additional consulting services and increased marketing approach they receive because it helps to bring in additional payroll business. 

Written by Annemaria Duran. Last updated June 27, 2016

Simplify HR management today.

Simplify HR management today.

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