In May 2016, the federal
Department of Labor (DOL) released final changes to the overtime regulations.
With this final rule, the DOL sought to update the salary level required
for exemption to ensure that FLSA’s intended overtime protections
would be fully implemented and to simplify the identification of nonexempt
employees, thus making the executive, administrative, and professional
employee exemption easier for employers and workers to understand
and apply. These changes were to be effective on December 1, 2016.
But, just a week before the December 1, 2016, effective date, the
U.S. District Court for the Eastern District of Texas granted an emergency
motion enjoining the DOL from enforcing the new overtime rule on a
nationwide basis. This means that until further action from the courts,
Congress, or the new administration, the minimum salary threshold
for the white-collar exemptions will remain where it has been since
2004, at $455 a week. The salary threshold for the highly compensated
employee (HCE) exemption will remain at $100,000 per year.
For employers that made
plans to reclassify employees as nonexempt rather than raise their
salaries to the $913–per-week level that was included in the new rule,
these employees may continue to be treated as exempt (for now), as
long as they otherwise qualify for exemption. Employers that took
steps to raise the salaries of exempt employees will have to carefully
consider their next steps, as taking back salary increases will likely
create an employee relations problem, and as of right now, the decision
on the rule is temporary.
Below is a summary of
the regulations on hold for now:
Salary level. The most prominent change would be the increase in the salary level
required for exemption from overtime to an annual salary of $47,476.
This translates to a weekly salary of $913. This means that your employees
who currently earn more than $455 per week ($23,660 annually), but
less than $913 per week, would need to be reclassified as nonexempt,
if the regulations eventually become effective, and would be entitled
to overtime for any hours worked over 40 in a week. The DOL seeks
to increase the salary level for employees in American Samoa to $767
per week. In addition, the base rate for employees in the motion picture
industry would increase to $1,397 per week.
every 3 years. The DOL seeks to automatically update the
standard salary and compensation levels every 3 years going forward.
The DOL aims to set the salary level at the 40th percentile of full-time
salaried workers in the lowest income region in the country, which
is currently the South.
for executive, administrative, and professional employees. In order to be exempt from overtime, executive, administrative,
and professional employees would have to be compensated on a salary
basis of at least $913 per week, exclusive of board, lodging or other
facilities, and meet the duties tests.
Computer professionals. The overtime exemption would apply to any computer employee who is
compensated on a salary or fee basis at a rate of $913 per week or
more, or on an hourly basis at a rate of at least $27.63 an hour,
and meets the duties tests.
HCEs. The DOL aims to set the total annual compensation level for HCEs
at $134,004 per year, up from the current threshold of $100,000. This
compensation level is equal to the 90th percentile of earnings of
full-time salaried workers nationally. According to the DOL, to be
exempt as an HCE, an employee would also have to receive at least
a standard salary amount of $913 per week on a salary or fee basis
and pass a minimal duties test. An HCE must customarily and regularly
perform any one or more of the exempt duties or responsibilities of
an executive, administrative, or professional employee and have the
primary duty of performing office or nonmanual work.
remain the same. The DOL did not alter the duties tests
for exemption. Therefore, employers would follow the duties tests
that they have been familiar with since 2004.
and incentive payments toward the salary level. If the
new regulations eventually go through, employers would be able to
count nondiscretionary bonuses, incentive payments, and commissions
toward as much as 10 percent of the salary threshold. In order to
count, these payments would have to be paid on a quarterly or more
frequent basis. The new rules would also permit the employer to make
a catch-up payment. An HCE’s annual compensation would continue to
include commissions, nondiscretionary bonuses, and other nondiscretionary
compensation earned, as it has in the past. An HCE would also have
to receive at least the new standard salary amount of $913 per week
on a salary or fee basis.
Fee basis. Under DOL’s final regulations, administrative and professional employees
would still be able to be paid on a fee basis rather than on a salary
basis. To determine whether the fee payment met the minimum amount
of salary required for exemption, the amount paid to the employee
would be tested by determining the time worked on the job and whether
the fee payment is at a rate that would amount to $913 per week if
the employee worked 40 hours. For example, an artist paid $500 for
a picture that took 20 hours to complete would meet the minimum salary
requirement for exemption, since earnings at this rate would yield
the artist $1,000 if 40 hours were worked.
establishments. Under DOL’s final regulations on hold for
now, employees whose primary duty is performing administrative functions
directly related to academic instruction or training in an educational
establishment or department would be exempt if they were compensated
on a salary or fee basis of at least $913 per week (or $767 per week,
if employed in American Samoa by employers other than the federal
government), exclusive of board, lodging, or other facilities, or
on a salary basis that is at least equal to the entrance salary for
teachers in the educational establishment in which they are employed.
Computing compensation. An exempt employee’s earnings may be computed on an hourly, daily,
or shift basis, without losing the exemption or violating the salary
basis requirement, if the employment arrangement also includes a guarantee
of at least the minimum weekly required amount paid on a salary basis,
regardless of the number of hours, days, or shifts worked, and a reasonable
relationship exists between the guaranteed amount and the amount actually
earned. The reasonable relationship test would be met if the weekly
guarantee was roughly equivalent to the employee’s usual earnings
at the assigned hourly, daily, or shift rate for the employee’s normal
scheduled workweek. Under DOL’s final regulations, for example, where
the weekly salary level required for exemption would be $913, an exempt
employee guaranteed compensation of at least $1,000 for any week in
which the employee performs any work, and who normally works four
shifts each week, could be paid $300 per shift without violating the
salary basis requirement. The reasonable relationship requirement
applies only if the employee’s pay is computed on an hourly, daily,
or shift basis. It does not apply, for example, to an exempt store
manager paid a guaranteed salary per week that exceeds the current
salary level who also receives a commission of one-half percent of
all sales in the store or 5 percent of the store’s profits, which
in some weeks may total as much as, or even more than, the guaranteed