The U.S. Department of Labor’s (DOL) new overtime rules were published on May 23, 2016, and include a new minimum salary that white-collar employees must be paid to qualify as exempt from the overtime requirements under the Fair Labor Standards Act (FLSA). While the majority of school district employees are considered professionals (e.g., teachers, administrators, counselors) by the DOL, and are therefore exempt or not eligible for overtime compensation, there are many employees who are non-exempt and are entitled to overtime payments. While school districts had already prepared their 2016-2017 budgets before the law was published, schools can still make modifications to ensure they are in compliance with the new law which is effective as of December 1, 2016.
There are three tests for assessing whether an employee is entitled to earn overtime:
- Salary basis test: how the employee is paid (salaried versus hourly)
- Salary level test: how much the employee earns (the new salary level for exemptions will increase from $23,660 to $47,476, or $913 per week annually for a full-year employee)
- Job duties test: for the white collar exemption to apply, specific duties and earnings must meet all applicable requirements.
To qualify for the white collar exemption, an employee must:
- Be paid on a salary basis, not hourly,
- Be paid at least a minimum of $47,476 per year, and
- Have job duties associated with exempt employees that are considered either executive, administrative, or professional.
Salaried workers who primarily perform executive, administrative, or professional duties continue to be exempt from DOL’s overtime rules. For schools, employees who are teachers, administrators,counselors, or other employees with a teaching certificate working in a position that requires certification (e.g. a teacher assistant working as a teacher assistant versus a teacher aide) are automatically considered exempt. Therefore, school districts should focus on all non-educator employees that are paid on a salary basis to determine if they are entitled to receive overtime compensation. While many of employee bargaining unit contracts include provisions for paying overtime, a careful analysis should still be performed. The employees who are in non-educator positions whose jobs are not directly related to instruction but involve general business matters will be impacted if they are paid less than the new minimum salary threshold. These can include accounting staff, transportation nutrition/food service operations staff, safety and security, and technology/IT staff. Another position that should be carefully reviewed is teacher aides, even if they are certified. Their specific job duties should be analyzed but they are most likely to fall into the non-exempt category and then need to be paid at least minimum wage plus any overtime earned.
The proposed annual update to the minimum salary threshold has been changed from changing every year to changing every three years, with the date for the increase set to a firm January 1st date, beginning on January 1, 2020. This will require schools to do some planning so that when the salary thresholds go up in the middle of the 2019-2020 school year, proper projections can be included in the budget for that year to account for prospective overtime compensation.
Some recommended options to ensure compliance include:
- Raise the salaries of employees who meet the duties tests, whose salaries are close to the new salary level, and who regularly work overtime, to at or above the salary level to maintain their exempt status.
- Those employees who are currently listed as “exempt” but do not pass the white collar exemption test, should be reclassified as “non-exempt”. Their salaries may be able to stay the same even if it below the salary level if they generally do not work any overtime, or the payment for any overtime hours is minimal.
- Continue to pay employees a salary and pay overtime for hours in excess of 40 per week. Although the FLSA requires employers to keep records of how many hours overtime-eligible employees work, the law does not require that overtime-eligible workers be paid on an hourly basis. Rather, employers may continue to pay employees a salary covering a fixed number of hours, which could include regular hours as well as hours above 40, which are subject to overtime and factored in at time and a half.
- Reorganize workload distributions or adjust employee schedules in order to comply with the Final Rule.
- Adjust the amount of an employee’s earnings to reallocate it between regular wages and overtime so that the total amount paid to the employee remains largely the same.
Shari Diamond, CIA
Shari has been with Cerini & Associates, LLP since 2008 where she works primarily with the firm’s school district clients providing internal audit and claims audit services. She has over twenty years’ experience performing internal audits, risk assessments, and compliance reviews, as well as recommending processes to strengthen the internal controls environment while increasing efficiencies. Her prior experience at PWC and Northrop Grumman included performing Information Technology audits.