The Fair Labor Standards Act (FLSA) was created in 1938 to establish a minimum wage, a forty-hour workweek, and to prohibit child labor. In addition, the FLSA concluded that certain jobs were eligible for time-and-a-half (overtime) pay for working more than 40 hours a week. Last month, the Obama administration updated the FLSA to extend overtime pay to more Americans. The new FLSA laws will go into effect December 1st, 2016.
This law change has far-reaching implications, and employers in all industries are now scrambling to learn and decide what it will mean for their businesses. Among these interested parties are those responsible for payments in the construction industry, which as of April 2016 employed over 6.6 million people and accounted for 5.5% of GDP.
This FLSA overtime law is of particular interest to construction because of the unique mix of salaried, wage, and independent workers in the industry. The FLSA changes are structured in a way that affects each of these groups differently. All this begs the question, how will the new FLSA laws impact payment in the construction industry?
What Are the FLSA Overtime Pay Changes?
There were three main updates made to the federal overtime laws:
- Anybody making $47,476 or less who meets other overtime criteria is eligible for overtime pay. Previously, only those making less than $23,600 were eligible.
- The minimum compensation for highly compensated employees (HCE) was raised from $100,000 to $134,004 per year. A highly compensated employee is defined as anyone who has at least 5% ownership of a company.
- A system was established that will update the salary and compensation levels (stated in 1 and 2 above) every three years.
Determining Eligibility For FLSA Overtime Pay
As stated by the U.S. Department of Labor, “A business in the construction industry must have two or more employees and have an annual gross sales volume of $500,000 or more to be subject to the FLSA.” If a company does not meet those conditions, its employees are not guaranteed overtime pay.
There are, however, two exceptions. First, “Any person who works on or otherwise handles goods that are moving in interstate commerce or who work on the expansion of existing facilities of commerce is individually subject to the protection of the FLSA and the current minimum wage and overtime pay requirements, regardless of the sales volume of the employer.”
Second, blue-collar workers in construction are always entitled to overtime pay. Blue-collar workers are defined as “workers who perform work involving repetitive operations with their hands, physical skill, and energy.” This categorization specifically includes “carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, and laborers.
Overtime Pay Rules for White-Collar Workers
On the other hand, three broad categories determine whether a white-collar employee is exempt (ineligible) from receiving FLSA overtime pay:
- How much money you make
- How you are paid
- What kind of work you perform
Below are general requirements for white-collar employees to be exempt from FLSA overtime pay. (Note that there are also special, more detailed exemption criteria that will not be covered in this article. These instances are more complex and involve a case by case examination.)
How Much Money You Make
As a white-collar worker, if your yearly pay is greater than $47,476 per year, you meet the first requirement of exemption from receiving overtime pay. That being said, you still must meet the following two requirements to be deemed ineligible.
How You Are Paid
The second stage of determining overtime exemption involves how you are paid. If you are paid on a salary basis you meet the second requirement for exemption. A salaried worker is defined as having a guaranteed minimum amount of money that he or she will receive for any week of completed work. One easy indication of salary based pay is that your base pay is computed by taking the annual total and dividing by the number of paydays in a year.
What Kind Of Work You Perform
If you fall into any one of the following job categories and you meet the salary and salary basis descriptions above, you are likely not eligible for FLSA overtime pay.
Executive Job Duties: The first category of exempt job duties are executive job duties. Executives are described as employees who regularly supervises two or more other employees, and has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments), and lastly has management as the primary duty of the position. As defined by the FLSA, some typical management duties are:
- interviewing, selecting, and training employees;
- setting rates of pay and hours of work;
- maintaining production or sales records (beyond the merely clerical);
- appraising productivity; handling employee grievances or complaints, or disciplining employees;
- determining work techniques;
- planning the work.
Professional Job Duties: The second category of exempt job duties are professional job duties. As defined by the FLSA, professionally exempt work means work which is predominantly intellectual, requires specialized education and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished from (more “academic” than) the mechanical arts or skilled trades.
Some examples of professionally exempt work would be lawyers, doctors, dentists, teachers, architects, clergy, registered nurses, accountants, engineers, actuaries, scientists, and pharmacists.
Administrative Job Duties: The third category of exempt job duties are administrative job duties. As outlined by the FLSA, administrative exemption is designed for relatively high-level employees whose main job is to “keep the business running.” Administrative employees provide “support” to the operational or production employees. They are “staff” rather than “line” employees.
Examples of administrative functions include labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration).
Outside Sales: Lastly, if you participate in outside sales you will be ineligible from receiving overtime pay. Outside sales are defined as “Selling their employer’s products, service, or facilities to customers away from their employer’s place(s) of business, in general, either at the customer’s place of business or by selling door-to-door at the customer’s home.”
The FLSA Overtime Pay Rule and Construction
The changes to the FLSA overtime rule will primarily affect white-collar workers and will not have an impact on pay to wage workers. Wage workers previously were entitled to overtime pay, and they maintain that right under the new laws.
Come December 1, when the FLSA law goes into effect, a larger number of white-collar workers will be eligible for overtime pay. Employees with salaries less than $47,476 will now be entitled to overtime pay. Previously, only employees making less than $23,600 were eligible.
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