Medical Aesthetic Facilities and Medical Spas Affected by New FLSA Overtime Rules As of Dec 1, 2016

Posted By American Med Spa Association, Tuesday, November 22, 2016

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**Update**
 
As of yesterday a Texas judge granted an emergency preliminary injunction brought by a coalition of business groups including the U.S. Chamber of Commerce and Plano Chamber of Commerce, holding that the Department of Labor exceeded its authority and ignored Congress’ intent by because it requires employers to pay overtime wages based on salary rather than an employee’s duties, using a salary testto determine if employees are exempt from Overtime pay. Some legal analysts now expect the Department of Labor to appeal Judge Mazzant's decision to the Fifth Circuit Court of Appeals, and ultimately expects the matter to land in the hands of the U.S. Supreme Court. For now, though, the new FLSA overtime rule is on hold and will not go into effect as expected on December 1, 2016.
 
In May of this year, the Department of Labor (DOL) updated the Fair Labor Standards Act (FLSA) overtime exemption rules for white collar workers, significantly increasing the salary standard for employees to be exempt from overtime compensation. Although the new rule was passed more than six months ago, it goes into effect on Thursday, December 1, 2016. This should be cause for concern if your business employs non-exempt executive, administrative, or professional “white collar” workers that make less than the salary threshold of $47,476 per year, and you have not updated your overtime pay policies or determined how you will implement this new requirement for all employers - including medical spas and medical aesthetic facilities.
 
Unless specifically exempted, employees covered by the FLSA must receive what is referred to as “overtime” pay—or pay for hours worked in excess of 40 in a work week—in an amount of at least 1.5 times their regular rate of pay.
 
Historically, the standard salary level for a white collar worker was set at $455 per week, which equaled $23,660 annually for a full-year employee. That standard was the result of the DOL’s updates to the regulations in 2004. Clearly, those figures are now outdated 12 years later. Because of this, President Obama signed a Presidential Memorandum directing the DOL to update and modernize the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards.
 
As of December 1, 2016, all non-exempt white collar workers will be subject to the new overtime regulations. This begs the question: Who is exempt from the new rule? The DOL has made it very clear that the “duties” test for white collar workers has not been affected by the new rules, so to qualify for an exemption, a white collar employee generally must:
1.    Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
2.    Be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker); and
3.    Primarily perform executive, administrative, or professional duties, as defined in the Department's regulations (the "duties test").
 
In a somewhat surprising concession to employers, the DOL’s new overtime pay rules allows non-discretionary bonuses, incentive payments and commissions to count for up to 10% of the minimum salary, provided these amounts are paid to employee at least quarterly.
 
The impact of this new rule is far-reaching for U.S. employers. The DOL estimates that the new rule will result in approximately 35% of all full-time, salaried workers being eligible for overtime based on their salary level alone. This new rule is expected to affect 4.2 million salaried workers.[1]
 
As an employer, it is critical that you understand your options for responding to the updated standard salary level. The rule takes effect on December 1, which is a Thursday, so employers need to make changes to their employee wages for the payroll period including December 1, 2016. For each employee newly entitled to overtime pay, employers have several options:
·       Increase the salary of an employee who meets the duties test to at least the new salary level of $47,476 to retain the employee’s exempt status;
·       Pay an overtime premium of 1.5 times the employee's regular rate of pay for any overtime hours worked;
·       Reduce or eliminate overtime hours;
·       Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the work week, to hold total weekly pay constant; or
·       Use some combination of these options.[2]
 
The new minimum salary levels will not update automatically every year (as originally proposed), but the rules will be adjusted every three years. beginning in January of 2020.
 
As the saying goes (or should go), don’t delay, be sure to pay! Should you have any questions or need assistance in properly responding to the updated DOL FLSA overtime rules, or need help generally with employment laws, please contact Renee E. Coover at rcoover@byrdadatto.com or, (773) 831-4701.