Department of Labor New Overtime Rules

New DOL overtime rules issued May 18, 2016, are currently scheduled to go into effect December 1, 2016. The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional (EAP) workers to be exempt from minimum wage and overtime pay protection under the Fair Labor Standards Act (FLSA). Automatic updates to these salary level requirements will now occur every three years, beginning January 1, 2020. Unless specifically exempted, employees covered by the FLSA must receive time-and-a-half pay for hours worked in excess of 40 in a workweek.

To qualify for 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 (the “salary basis test”);
  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) under this Final Rule (the “salary level test”); and
  3. Primarily perform executive, administrative, or professional duties, as defined in the DOL’s regulations, the “duties test” (see below).

Prior to the December 1, 2016 change the salary level test required a pay of at least $455 per week or $23,660 annually. Non-discretionary bonuses can satisfy up to 10 percent of the new salary requirement as long as they are paid on a quarterly or more frequent basis. Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers).

Highly compensated employees (HCE) may also be exempt from the overtime pay requirements if they meet certain requirements. HCE’s must be paid at least $134,004 annually and satisfy a minimal duties test. Furthermore under the Final Rule employers must pay HCE workers at least the standard weekly salary level of $913 per week on a salary or fee basis, while the remainder of the total annual compensation may include commissions, non-discretionary bonuses, and other non-discretionary compensation. Because employers may fulfill almost two-thirds of the HCE total annual compensation requirement with commissions, non-discretionary bonuses, and other forms of non-discretionary deferred compensation, the DOL determined that it would not be appropriate to permit employers to also use non-discretionary bonuses and incentive payments to satisfy the standard salary amount (the $913 per week).

Job titles do not determine exempt status, and the fact that a white collar employee is paid on a salary basis does not alone provide sufficient ground to exempt that employee from the FLSA’s minimum wage and overtime requirements. For an exemption to apply, an employee’s specific job duties and salary must meet all of the applicable requirements provided in the DOL’s regulations.

In response to the overtime rules employers can:

  1. Pay time-and-a-half for overtime work;
  2. Raise workers’ salaries above the new threshold;
  3. Limit workers’ hours to 40 per week; or
  4. Some combination of the above.

Nothing in the FLSA or in the overtime rule requires the choice between flexible work arrangements or opportunities for career advancement and complying with basic labor standards. There is no requirement that a worker must have a predetermined schedule, and nothing prohibits working whenever, wherever or however the worker and the employer agree. Although the FLSA requires that employers keep certain records to ensure that workers get paid the wages they earn and are owed, it’s up to the employer to choose the method that works best for them and the needs of their workforce. There’s no requirement that employees “punch in” and “punch out.” Employers have flexibility in designing systems to make sure appropriate records are kept to track the number of hours worked each day.

The final rules currently do not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay.

Information on Executive, Administrative, Professional, Computer and Outside Sales Employees under the FLSA can be found at: https://www.dol.gov/whd/overtime/fs17a_overview.htm. Additional information is also available at: https://www.dol.gov/whd/overtime/fact_sheets.htm.

A number of states and business organizations have filed lawsuits challenging the new overtime regulations. Nonetheless businesses should be prepared to comply with the new overtime rules once they take effect. For more information on the new rules you may want to refer to the DOL website at https://www.dol.gov/WHD/overtime/final2016/.

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