Mike Huber
American MTS
The U.S. Department of Labor (DOL) recently passed new regulations as part of the Fair Labor Standards Act regarding overtime exemption for salaried employees. These new rules are causing concerns as they contain large increases in the minimum salary requirements along with a mechanism for automatically raising these figures. Some positions that may be most impacted at EASA facilities include office personnel, shop foremen, salesmen, drivers and even company owners.
Increase in minimum salary
This is the biggest change and the one that could potentially have the greatest impact. The current minimum salary for overtime exempt employees is $455 (all amounts shown here are in U.S. dollars) per week, or $23,660 annually. As of December 1, 2016, this minimum amount more than doubles to $913 per week, or $47,476 annually. Salaried employees must also follow the standard duties rules that define an exempt employee as shown below.
Increase in highly compensated employees (HCE) threshold
There is a threshold above which the salaried employee’s standard duties rules are relaxed somewhat. The minimum salary to qualify for HCE is increasing from $100,000 to $134,004.
Automatic increases
The current minimum salary levels for both of the above have been in place for the last twelve years. The new rules provide a mechanism for automatically increasing these levels going forward every three years.
Understanding the Standard Duties Test for salaried employees
One area of the rules that has not changed but is important to consider when deciding to hire or promote an employee to a salaried position is the duties rules as defined by the DOL. Below is a basic summary from the DOL website.
The document referenced in the table below (29 CFR 541 Subpart B, C and D) is also available on the DOL’s website. There are other subparts that have definitions for example of sales people and business owners as to what is and is not considered overtime exempt duties. This information can be found here: https://www.dol.gov/whd/overtime/regulations.pdf
Relaxed standard duties rules for HCE
For those companies with highly compensated employees, the standard duties are relaxed somewhat. You still need to meet the requirements of being an executive, administrative or professional employee and be paid a salary of at least $134,004. But the standard duties are satisfied if only one of the standard duties tests are performed regularly. These duties are defined in 29 CFR 541 Subpart B, C and D
Steps to consider to get ahead of the changes
In preparation for the new rules, you might want to take some proactive measures now such as:
- Review your payroll and consider your merit increase cycle – This goes not only for now but in the years to come. Keep in mind that if you decide to raise a salaried employee to a level that meets the new minimum, there will need to be additional increases every three years to maintain their exempt status regardless of merit.
- Analyze non-discretionary bonus and commission payments – The existing rule contains no provision for allowing bonus and commission payments to count towards the minimum compensation exemption. The new rule does. But if you have an employee who receives these extra payments you need to ensure that the requirements are met each quarter and not just at yearend. If they come up short, you must give them a “make up” payment within one week of the quarter end, or go back through the entire quarter and compensate them for all overtime hours worked.
- Carefully review job duties for exempt positions – These are described in some detail in the applicable paragraphs in the Department of Labor 29 CFR 541. Keep in mind that if a disgruntled current or ex-employee files a complaint with the DOL, the burden of proof that overtime is not owed is on the employer. And if you are found to owe it, there will likely be penalties to pay as well.
- Understand unaffected exemptions – The one that applies to many of us is outside salespeople. They are not required to be paid on a salary basis so the new minimum threshold will not apply to them. Drivers can also fit this category if they are selling regularly as part of their duties.
- Prepare to discuss changes with affected employees – Employee reclassification often carries the potential for discontent which can lead to DOL complaints and even litigation. Some employees will not understand why they have been reclassified as non-exempt and might believe they should have been eligible for overtime all along. To minimize the risk for misunderstandings, you should take care to explain the reason for the reclassification and maintain open communication with employees.
- Take a look at applicable state and local law - The changes to the laws by the federal government define minimum requirements for every state. But the state and local governments may have even more stringent requirements.
With the release of the final rule, the DOL will likely be pursuing complaints with renewed vigor. When in doubt, it will probably be best to pay the overtime regardless of whether an employee is typically paid by the hour or a weekly salary.
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