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Seasonal Exemption May Help Some Employers Avoid New Overtime Pay Requirements

    Client Alerts
  • October 18, 2016

The December 1 effective date is rapidly approaching for the Department of Labor’s new white-collar overtime exemption salary levels. Employers struggling with their ability to pay the more than doubled salary minimums are seeking alternatives to converting their exempt employees to non-exempt overtime eligible ones. Apart from the white-collar exemptions, the Fair Labor Standards Act contains a number of other statutory exceptions from its overtime requirements for various types of businesses. While most of these exemptions apply to certain industries, a few companies may be able to take advantage of a broader category.

Section 13(a)(3) of the FLSA exempts businesses from its minimum wage and overtime requirements if they are seasonal amusement or recreational businesses. Unlike the white-collar exemptions, Section 13(a)(3) covers all employees within the organization, regardless of duties performed. In order to qualify, the business must not operate for more than seven months per year or must have average receipts in any six months that are no more than one-third of its total annual receipts. DOL interprets this requirement on a cash receipt and not on an accrual basis.

Earlier this month in Hill v. Del. N. Cos. Sportservice, Inc., the Second Circuit Court of Appeals concluded that the seasonal exemption also extends to contractors that provide services to amusement and recreational businesses. In this case, the court rejected overtime claims made by employees of a food, beverage and merchandise contractor to the Baltimore Orioles. The concessions agreement with the baseball club allows the business to take advantage of the Section 13(a)(3) exemption, as long as it meets the financial test.

While this exemption only applies to a small slice of employers, for businesses that potentially qualify, Section 13(a)(3) or other industry-based exemptions may provide a solution to escalating wage costs brought on by the new DOL requirements.