Employment Law Update: Top Ten Take-Aways from the DOL’s Final Guidance on Overtime Rules

May 25, 2016 by

employment-law

We shared last month that massive changes to federal overtime rules are coming. Last week, this came to fruition with the Department of Labor (DOL) releasing its final rules. The 508 page government treatise detailing the seismic overtime shift is available online for your review or you can watch the DOL’s snazzy 2-minute YouTube video explaining the change. In the alternative, we’ve carefully studied the genesis of these changes and the final rule and offer our 10 key take-aways.

  1. Minimum salary threshold doubles, but still lower than initial recommendations. The salary threshold came in a bit lower than originally proposed by the DOL. The DOL originally proposed an increase from $23,660 to $50,400. The final rule still doubles the salary threshold, but increases it to a lower number of $47,476 ($455/week to $913/week).
  1. The “highly compensated” employee (HCE) salary threshold is jumping from $100,000/year to $134,004/year. Prior to December 1, 2016, employees earning over $100,000 are assumed exempt from overtime eligibility. This December employees must make at least $134,004 to be considered exempt by default under the new HCE rule.
  1. The salary thresholds will adjust every three years. The upcoming change is only the seventh time since 1938 that the thresholds have been updated, and the first since 2004. Going forward the DOL will update the minimum salary threshold and the HCE threshold every three years, beginning January 1, 2020. This required adjustment is in an apparent effort to keep up with changes in wages, cost of living, and inflation. Each three-year update will raise the minimum standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region. The $47,476 minimum is expected to increase to $51,168 in 2020. Likewise, the HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, which is estimated to increase the $134,004 HCE threshold to $147,524 in 2020. (We’ll be here to answer your questions in 2019.)
  1. The duties tests will stay the same. See my post from last month regarding the duties tests, or click here to see the DOL’s comparison of duties tests.
  1. Certain nondiscretionary bonuses and incentives may count toward the salary thresholds. In what is an entirely new rule, employers will be able to count nondiscretionary bonuses, incentives and commissions towards as much as 10% of the salary threshold. Therefore, an employee could receive a nondiscretionary bonus of $4,747.60 and salary of $42,728.40 (totaling $47,476) and become eligible to potentially be deemed exempt from overtime. This is not as simple as it sounds. These bonus payments must come, at a minimum, on a quarterly basis. Moreover, these payments must be nondiscretionary.
  1. Nonprofit Exemption. Many non-profits are not covered by these changes and the FLSA in general. As a major caveat, there are several exceptions to this rule, many of which range from straight forward (i.e., hospitals are covered by these rules) to extremely complicated (i.e., an employee engaged in interstate commerce is covered individually). We recommend that all non-profits seek legal guidance on the application of these complicated rules.
  1. Don’t panic. You need to immediately begin thinking through how to bring your company in compliance; however, the rules do not go into effect until December 1, 2016. You have time, but the last thing you want is to be losing sleep over overtime planning during your Thanksgiving break. Address the issues now.
  1. Don’t fall for the traps that existed prior to the new rules! Remember, simply because an employee is “salaried” does not mean she is exempt. Employers must still follow the statutory structure found in the federal regulations.
  1. Read my prior post. Click here to read my April post explaining the current overtime regulations and exemption structure; the DOL’s proposals; and our firm’s recommendations for companies.
  1. Retain legal counsel to help navigate an analysis of your current workforce in light of these major changes.

There has been a lot of chatter about business groups challenging these new regulations in the courts and legislation. However, we believe it to be unlikely these final rules will be altered. Companies should start considering how these changes impact their workforces now. Our attorneys at Brown Fox will keep an eye out for changes and will share them in the Brown Fox Brief.

Russ Brown is a labor & employment attorney and founding member of Brown Fox PLLC. If you would like to subscribe to future legal updates and firm news, click here and enter your email address.

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