A Broadcaster’s Guide to the U.S. Department of Labor’s New Overtime Exemption Requirements

The Fair Labor Standards Act (“FLSA”) is the federal law governing wage and hour requirements for employees. Pursuant to the FLSA, employers must pay employees a minimum wage and compensate them for overtime at 1.5 times their regular rate of pay for any time worked exceeding 40 hours in a workweek unless those employees are exempt from the requirement. On May 18, 2016, the Department of Labor issued a Final Rule that effectively doubled the minimum salary threshold for certain types of employees to be exempt from the FLSA’s overtime rules, and significantly raised the salary threshold for other types of employees. As a result, many currently exempt employees whose salaries are below the new thresholds will soon be eligible for overtime pay. The White House projects the change will impact over four million previously exempt American employees.

Although the FLSA applies to almost all employers, it contains exemptions for certain types of employees at small-market broadcast stations. The Final Rule does not affect these specific broadcast industry exemptions, but will affect many other currently exempt employees in the broadcast industry who, unless they receive salary raises, will soon become eligible for overtime pay.

This Advisory only addresses federal law. Some state laws impose stricter standards than federal law as to which employees are exempt from overtime pay. Employers must ensure that they also meet the requirements of any applicable state or local employment laws.

Overview

The FLSA requires employers to pay non-exempt employees an overtime rate of 1.5 times their regular rate for all hours worked over 40 hours per workweek. However, the FLSA exempts from its overtime rules certain classes of employees who are paid on a salary basis and meet specific “white collar” duties tests. The Department of Labor’s Final Rule increases the minimum salary necessary for these classes of employees to be deemed exempt from the FLSA’s overtime rules, but does not alter the duties tests for those exemptions.

Beginning December 1, 2016, employees classified as exempt from overtime under the “executive”, “administrative”, or “professional” (“EAP”) exemptions must receive a guaranteed weekly salary of at least $913 ($47,476 annually) to continue to be exempt. The previous minimum salary to qualify as exempt was $455 per week ($23,660 annually). This salary level is tied to the 40th percentile of wages for full-time salaried employees in the country’s lowest-wage Census Region. The Final Rule allows employers to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of an employee’s salary level in order to reach the exemption threshold. Such payments must be made on a quarterly or more frequent basis. For EAP employees, employers may make one catch-up payment within one pay period of the end of a quarter to meet the required salary level for the EAP exemptions.

The other affected employee exemption is the “highly compensated employee” (“HCE”) exemption. An HCE is an employee who customarily and regularly performs one or more duties of an EAP employee and is compensated at a specified higher minimum level. The minimum total annual compensation for the HCE exemption will be $134,004 annually, effective December 1, 2016 (up from $100,000 under the current regulations). This compensation level represents the 90th percentile of wages for full-time salaried employees nationally. Employers may make a yearly catch-up payment in order to meet the minimum annual compensation level for the HCE exemption.

After the Final Rule goes into effect on December 1, 2016, these minimum salary and compensation levels will automatically update every three years beginning January 1, 2020, with the new salary levels being announced 150 days prior to their effective date.

Below is a brief overview of each of the exempt white collar employee classifications and their respective “duties”, broadcaster-specific insights for each classification, and a discussion of some special exemptions that may be helpful to broadcasters, including the exemption for certain employees of small-market broadcast stations.

Download: A Broadcaster’s Guide to the U.S. Department of Labor’s New Overtime Exemption Requirements