New FLSA Rules Rolling Out This Summer
Recently, the U.S. Department of Labor (DOL) released two new rules relating to overtime calculations and employee compensation under the Fair Labor Standards Act (FLSA).
Change to the Calculation of Overtime for Salaried Workers
Under the FLSA, there are two ways to determine overtime calculations, the “time and a half” method and the “fluctuating workweek” (FWW) method. The latter method is used when an employee receives a fixed salary for working fluctuating hours rather working on an hourly basis. FWW calculates a salaried employee’s overtime by computing the employee’s regular rate of pay each week based on the employee’s hours worked for that week. The new DOL regulations regarding DWW determine that all bonuses, premium payments, and other pay (such as commissions, hazard pay, or nighttime differentials) are included in the calculation of the FWW employee’s regular rate of pay for the purpose of calculating overtime.
This change may mean that salaried employees will see an increase in their overtime pay. However, it may also potentially hurt salaried employees because employers may choose to reduce an employee’s fixed weekly salary and shift considerable portions of an employee’s to bonuses and other forms of payment, all while the employees are averaging the same number of hours throughout the year.
Change to the Compensation of Commissioned Retail and Service Employees
Under the FLSA, commissioned employees working in a retail or service establishment may be exempt from receiving overtime pay. An employee falls within this exemption if they work for a “retail or service establishment,” if their regular rate of pay is in excess of one and one-half times the minimum wage, and if more than half of their compensation was derived from commissions earned from the sale of goods or services.
The most difficult part in determining if an employee fell within this exemption was determining if an employee was a ‘retail’ employee as the FLSA does not define what qualifies as a “retail or service establishment.” In an attempt clarify if an individual worked in a retail establishment, the Wage & Hour Division of the DOL issued non-exhaustive lists of establishments that did and did not qualify as ‘retail’ under the FLSA. However, because these lists were often vague, confusing and contradictory they were removed by the DOL. This update to regulation is effective on May 19th and will call for businesses to reevaluate whether they are considered ‘retail’ without the lists for guidance. This may lead to many businesses that formerly viewed themselves as ineligible for the exemption to begin implementing it on their commissioned employees.
Again, this change has the potential to both help and hurt employees depending on how their employers choose to implement the updates. In the worst cases, employees that long considered themselves to be safely outside of the “retail or service” work designation may begin to be considered within it according to their employer and lose the overtime pay they relied upon.
Overall, these updates could be simplifying and beneficial to employees in their shift to a more flexible, COVID-attuned work schedule. If you still have questions about how you may be impacted by these rules, a Wage & Hour attorney can help.
– Audrey Bidwell