New Overtime Regulations go Into Effect in 2016 – Download the entire FLSA Document here.
The Fair Labor Standards Act (i.e. FLSA) has guaranteed workers a minimum wage and overtime pay at a rate not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. The concept behind the act implemented in 1938 was to ensure that workers would receive a fair day’s pay and for a fair day’s work and to protect them from the “evil” of overwork.
The FLSA applies to all enterprises that have employees engaged in commerce or in the production of goods for commerce and have an annual gross volume of sales made or business done of at least $500,000.
Until now Casino operators have been able to take advantage of a number of exemptions included in the FLSA. The act has largely remained unedited since 2004. However, in just a few short weeks this will all change. On March 13, 2014, President Obama signed a Presidential Memorandum directing the Dept. of Labor to update the exemptions dramatically.
In 2016, barring a court injunction, your labor costs will jump dramatically.
The FLSA is approaching the issue in three ways:
- Increase the minimum salary level for fulltime salaried employees to be exempt from overtime pay. The current minimum salary is $23,660. The newly proposed minimum in 2016 will be $47,892. Yes – that means all employees making less than $47,892 will be entitled to overtime if made to work over 40 hours in a 7 day period. This is based off of the wages from the 40th percentile of employees.
- Increase the total compensation requirement needed for highly paid employees to be exempt from overtime pay. Previously employees making over 100k a year and customarily performing one or more of the exempt duties were exempt from getting paid overtime. The new regulation will raise that minimum salary level to $122,148; based off of the 90th percentile of highest paid employees
- Lastly the Dept. of Labor will be implementing an automatic mechanism for increases to the minimum salary levels to qualify for overtime exemptions.
For an employer to exclude an employee from minimum wage and overtime protection pursuant to the EAP exemptions, the employee generally must meet three criteria: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”). If your employee does NOT meet ALL three guidelines you are required to pay them a minimum of time and a half for any time worked after 40 hours in a 7 day week.
Let’s look at a few examples. Unless things have changed since I worked at a property most of us worked a 50-60 hour work week. Here are some examples of the additional labor costs you should be prepared to pay:
If just 18 of your employees work 10 hours of overtime per week you could see an additional annual labor expense of almost $400,000! (Avg. Salary data collected from Salary.com and glassdoor.com.)
In 2013, there were an estimated 144.2 million wage and salary workers in the United States. The Dept. of Labor estimates that the new regulations will affect 43 million white collar salaried employees. White collar salaried employees not subject to the EAP salary level test include teachers, academic administrative personnel, physicians, lawyers, judges and outside sales workers.
So who IS exempt from getting overtime pay in 2016?
- Anyone making over 122k a year
- Employees that make over $47,892 AND meet one of these exemptions
- Have a primary duty of managing the enterprise or a department or subdivision of the enterprise. To argue this exemption the employee must also “customarily and regularly direct the work of at least two employees and have the authority to hire or fire. Very few employees in tribal gaming have that authority.
- To meet the Administrative exemption the employee must make over the minimum salary as well as having a “primary duty of the office or non-manual work DIRECTLY related to the management or general business operations of the employer or the employer’s customers. AN EXEMPT ADMINISTRATIVE EMPLOYEES’S PRIMARY DUTY MUST INCLUDE THE EXERCISE OF DISCRETION AND INDEPENDENT JUDGEMENT WITH RESPECT TO MATTERS OF SIGNIFICANCE.
- With respect to the ‘professional exemption’ the employee must have a primary duty of work requiring “knowledge of an advanced type in a field of science or learning customarily acquired by prolonged, specialized, intellectual instruction and study. OR work that is original and creative in a recognized field of ARTISTIC endeavor. ““The requirement of ‘invention, imagination, originality or talent’ distinguishes the creative professions from work that primarily depends on intelligence, diligence and accuracy. The duties of employees vary widely, and exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee. Determination of exempt creative professional status, therefore, must be made on a case-by-case basis.” Unless you are allowing your graphic design team to come up with their own concepts – you will most likely be paying them overtime. An exempt ‘professional employee’ must perform work requiring CONSTANT EXERCISE OF DISCRETION AND JUDGEMENT. Also exempt are teachers, computer analysts, programmers, software engineers, or other similarly skilled workers in the computer field.
The Department’s outreach has made clear that there are also some widespread misconceptions about overtime eligibility under the FLSA. For example, many employers and employees mistakenly believe that payment of a salary automatically disqualifies an employee from entitlement to overtime compensation irrespective of the duties performed. Many employees are also unaware of the duties required to be performed in order for the exemption to apply. Additionally, many employers seem to mistakenly believe that nonexempt white collar employees must be converted to hourly compensation. Similarly, other employers erroneously believe that they are prohibited from paying nondiscretionary bonuses to EAP employees, given that they cannot be used to satisfy the salary requirement.
The Department is also considering revisions to the duties tests in order to ensure that they fully reflect the purpose of the exemption. Possible revisions include requiring overtime ineligible employees to spend a specified amount of time performing their primary duty (e.g., a 50 percent primary duty requirement as required under California state law) or otherwise limiting the amount of nonexempt work an overtime-ineligible employee may perform, and adding to the regulations additional examples illustrating how the exemption may apply to particular occupations.
So what should you do as a casino operator?
- Analyze your current workforce. You’ll need to identify employees that will be changing their status of exempt to nonexempt
- You must have you employees clocking in their hours on a regular basis to ensure all guidelines are being followed
Consider the following options:
- Increase employee’s salaries to maintain their exemptions
- Reduce their salary (and likely morale) to balance the overtime payments that will likely be incurred
- Do nothing and begin to pay large amounts of overtime
- Consider eliminating flexible work arrangements that allowed previously exempt employees from working at home. (non tracked hours could lead to costly litigation.)
Consider outsourcing some of your work to 3rd party professionals not affected by the FLSA changes. House Edge Digital for instance can perform many of the job duties of your current staff without having to worry about overtime regulations and or large Dept. of Labor fines. Our staff is made up entirely of folks previously employed at top-rated casinos. We understand gaming, and we can help.