Aside from its Administrative Interpretation of joint employment under the FLSA (click here , here and here for review) the DOL has been hard at work on its final rules for white-collar overtime exemptions. These would apply primarily to Administrative, Executive, Highly Compensated, and Computer Professional employees. Last year, the DOL issued proposed rules and amid a storm of public comments, and regrouped in order to finalize the rules, which it released last week. Upon approval (or lack of disapproval) from the Office of Management and Budget and Congress, will take effect. You are probably questions like: What happens now? What changes will you, as employers, have to live with soon? When will they take effect? Great questions! Let’s see, if we can get some answers, after the jump…
As you may know, under most of the FLSA’s overtime exemptions, there is a salary test. Employees must be paid a set, pre-determined salary, usually weekly, that does not vary based on the number of hours worked or quality of work delivered. Currently, that salary must be at least $455 a week, or $23,660 a year. Once that threshold is met, then one must look at the primary job functions the employee performs to see if his/her job meets any of the exemption categories. If so, the employee wilI not be eligible for overtime pay. If the salary does not meet or exeed that threshold, then, with few very narrow exceptions, s/he is most likely a non-exempt employee. In addition, there is an exemption category for highly compensated employees, whereby they will also be exempt if they earn an annual salary of at least $100,000. These are the primary targets of the DOL’s new overtime rules, should they take effect.
OK, so why is the DOL fixated on white-collar exemptions and salary tests? The short answer: because President Obama told them to in to a Memorandum he issued in March 2014. The DOL also mentions on its website that the last time it re-visited the salary test was in 2004, and salaries and costs of living have risen since then. OK, that’s a fair point. Here is the other likely reason: If the salary test increases the threshold, more workers are entitled to overtime. The President and the DOL’s perception, and in some cases, rightly, is that it is currently too easy for employers to take advantage of the overtime exemptions as currently written. As such many employees work far more than 40 hours a week without being paid for the extra time, and really aren’t being paid a lot to do it. Now, I am not saying that all or even most employers do that. Apparently, however it happens enough.
Anyway, here are the key changes. First, the minimum salary threshold will rise from $455 to $970 a week or, from $23,660 a year to $50,440 for 2016. That is more than double the present threshold. Also, the Highly Compensated Employee Exemption annual salary threshold will jump from $100,000 to $122,148. (While there was a lot of public comment — and protest–when the DOL first issued the proposed rules last year, it appears that very little if anything has changed since then.) On what did the DOL base these specific numbers? According to the DOL, the $970 a week is the 40th percentile of weekly earnings for full-time employees in 2016, and the $122,148 is in the 90th percentile of annual earnings for full-time employees in 2016. Anything else? Yep. The rules set “a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.” In other words, these threshold amounts will automatically increase each year.Oh, and discretionary bonuses do not count toward the salary threshold. Is there any good news? Maybe. The DOL — for now–has left the duties test intact, though it did invite public comment on that issue.
When will these rules take effect? It could happen as early as June or July. The OMB’s usual timeframe for reviewing these types of rules is 4 to 6 weeks, sometimes it takes longer. If the OMB gets the rules out of review by May 16, then Congress has 60 days to review them and issue a resolution disapproving them. The President can, of course, veto the resolution, which Congress 30 days to override. For example if the OMB concludes review by April 30, Congress has until June 30 to issue a resolution. If it were to so by June 30 and if the President vetos it before Congress adjourns for the summer in mid-July, it might have to call emergency sessions to try to override the President’s veto. Assuming it is unable to do so, the rules would go into effect somewhere between early August and after Labor Day. If the timeframe stretches longer, it could be the latter part of 2016–unless Congress can either override the Presidential veto or pass recently introduced legislation overriding these rules — and can override the likely Presidential veto there too. You get the idea, it’s probably going to happen. The real question is how much time do you all have and what can you do to prepare?
Here are some steps you might want to consider:
- If you currently have any exempt employees hovering at that $50,440 threshold, you might want to give them raises now, and annually, to ensure that they stay exempt.
- For those of your employees who are currently classified as exempt but not earning anywhere near the threshold, you can either re-classify them and use the same mechanisms for them that you already use to track your currently non-exempt employees’ time– and control their overtime.
- Review and tighten up your overtime policies and your employee classifications to make sure everyone is correctly classified.
- Review and tighten up your current practices for keeping track of time worked and your record keeping. In other words, you might want to schedule a wage and hour check-up!
OK, let’s leave the DOL and FLSA for a bit and come back next week to our friends at the NLRB and see what the latest word is on social media policies, shall we? See you then!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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