United States: Digging Into The New Overtime Regulations

Within the Department of Labor's aggressive regulatory agenda in the last few years, its proposed regulations on the white collar exemptions from overtime generated some of the most significant concerns and anticipation for employers.  In 2015, the Department of Labor ("DOL") proposed substantial changes to the minimum salary level requirements, sought input on whether bonuses and incentives should be included in meeting the salary level test and considered changing the duties test to establish overtime eligibility.  Taken together, these proposed changes would have had a drastic effect on the obligation of employers to pay overtime.  On May 18, 2016, DOL issued its Final Rules and employers have until December 1, 2016 to comply.  Overall, the changes strike a middle ground as DOL declined to adopt the more restrictive California 50% duties test.  However, doubling the salary level threshold and other changes present significant economic and compliance challenges for employers.  Below is a summary of key takeaways and steps employers should consider to address these changes and ensure compliance.

Duties Test Remains the Same:  It was widely believed that DOL was leaning towards changing the test that an employer would need to satisfy to demonstrate that an employee qualified for the executive, administrative or professional exemption from overtime.  Based upon language in the proposed regulations,  DOL strongly signaled that it would change the duties test and look to adopt the more restrictive test in California where employees would have to spend at least 50 percent of their time performing exempt duties to qualify for the exemption.  However, in the final regulations, the DOL adhered to the existing test and the critical question remains whether an employee's primary duty satisfies the administrative, professional or executive definitions.

Exempt employees must earn a salary level of at least $47,476 ($913/week):  With the new regulations, the requirement that exempt employees must be paid a salary remains the same, but the minimum salary threshold will almost double to $47,476 per year.  This final number is less than the $50,444 in the proposal but still marks a substantial increase in salary requirements for exempt employees.  The DOL's final regulations also rejected requests to exclude educational and other non-profit employers from the salary increase.  To ensure compliance, employers will need to look at all of their employees currently classified as exempt who are earning less than $47,476 and assess (i) whether they remain comfortable that the duties performed satisfy the exemption requirements; and (ii) if the duties test is satisfied, whether they want to increase the salary level or whether it would be more cost effective to pay overtime to the employees.  As more employees enter the overtime eligible category, employers will have to pay special attention to employees who telework or who have flexible schedules.  While the FLSA does not mandate that these workers "punch the clock," more employees will need to track their time in a way that employers can ensure that they are not working more than 40 hours a week.  This makes training employees and managers paramount as the potential liability increases.

Salary level indexed every three years:  DOL's proposal included a provision that the salary level would be automatically indexed on an annual basis.  The final regulation calls for updating the salary level every three years.  While this represents some reprieve for employers, it leads to compliance challenges.  The new regulations ensure that employers will be re-evaluating their exempt employee population every three years when the salary level will be adjusted.  With each salary change, employers will again need to examine whether it remains confident that the duties test is satisfied, and, if so, whether the employer wants to again increase the salary level or forego exemption.  This reexamination of classifications every three years is likely to result in even more non-exempt employees over time.  Nonetheless, the salary indexing remains subject to a legal challenge as it is unclear whether the Fair Labor Standards Act gives DOL the authority to index.  

Inclusion of nondiscretionary bonuses and incentives:  For the first time, the DOL will allow employers to satisfy the salary level test with non-discretionary bonuses, commissions or other incentives as long as they are paid quarterly and do not exceed 10% of the $47,476 salary level.  The regulations also give employers the opportunity to provide a "make up" payment if due to poor sales in the quarter, for example, the anticipated commissions render the employee's quarterly salary below the new salary threshold.  This presents perhaps the most complex compliance concern.  Paying and accounting for bonuses and incentives on a quarterly basis represents a new way of operating for many employers who are used to performing this function on an annual bases.  Managers will need to be mindful of whether production bonuses or other incentives are sufficient for employees to reach the salary threshold but also not large enough to surpass the 10% limit.  This is another area for training of managers and compensation professionals.

Highly Compensated Employees: The separate exemption for "highly compensated employees" where the employee need only perform one of the exempt duties or responsibilities to satisfy the exemption, will now apply to employees whose annual salary is more than $134,004.  This is $34,000 more than the current level and $12,000 more than proposed.  This is one of the bigger surprises in the rulemaking.  While DOL claims that the large increase from the proposal is consistent with its attempt to keep this threshold at a level equal to the 90th percentile of earnings nationally, this is a significant increase and fewer employees will qualify for the reduced duties test.

The bottom line is that the Final Rules will have a major financial and operational impact on for-profit, non-profit and governmental employers.  The increase in the salary threshold, plus the increase in the salary level for the highly compensated exemption, means that millions of workers will now be eligible for overtime who were not previously eligible. Employers will need to make tough decisions about whether to reclassify workers, increase compensation levels and/or re-structure positions to comply with the new rules.  Employers who continue to treat employees as exempt under one of the white collar exemptions will also need to audit their workplaces to ensure that exempt employees meet the new salary level test, be prepared for the amounts to index, and train human resources and managers on how to calculate and track bonus and incentive payments.  Employers with non-exempt employees, especially those who telework or work flexible schedules, will need to closely monitor hours and reporting to make sure these workers do not inadvertently trigger overtime liability.

WEBINAR NEXT WEEK:  We will be hosting a one-hour webinar on Wednesday May 25, 2016 at 1 pm ET to review the new regulations and discuss their the impact on different industries, strategies for employer compliance, re-classification options, and litigation prevention, among other topics.

Register here for the webinar

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Sep 2018, Seminar, Tokyo, Japan

Orrick’s Global Japan Practice is hosting a series of “Orrick Library” seminars to explore legal issues in various fields in Japan as well as the United States, Asia and Europe

26 Sep 2018, Conference, New York, United States

Employment Partner, Mandy Perry and Chair of Orrick's Global Employment Law Practice, Mike Delikat will be participating in the Global Business Protections 2018: International Restrictive Covenants and Confidential Information Conference.

10 Oct 2018, Conference, Florida, United States
Julie Totten is Program Chair of this year’s conference, Lynne Hermle is speaking on women in the courtroom, boardroom, and c-suite, and Erin Connell is speaking on pay equity and pay transparency.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions