On May 18, 2016, the U.S. Department of Labor issued its long awaited final overtime rules changing the salary basis requirement for overtime exemption from $455 per week to $913 per week and set the total annual compensation requirement for highly compensated employees at $134,004. This is a significant change that will pose challenges for Maine employers today and in the future. Here’s what you need to know:
Frequently Asked Questions:
1. Does the law change the Executive, Administrative and Professional exemptions under the Fair Labor Standards Act?
No. The duties tests under the Fair Labor Standards Acts remain the same. However, if employees are not paid $913 per week in salary, they will not qualify for the exemption even if their job duties meet the requirements under one of the exemptions.
2. Can bonuses and commissions be included in the calculation of an employee’s salary?
Yes. The Final Rule amends the salary basis test to permit employers to use nondiscretionary bonuses and incentive payments, including commissions, in the calculation of salary. However, bonuses and incentive payments can only account for 10 percent of the new salary level.
3. Will $913 remain the level under the salary basis test permanently under the Final Rule?
No. The Final Rule establishes a mechanism for increasing the salary level every three years. Beginning on January 1, 2020, the threshold will increase to maintain the salary level at the 40th percentile of earnings of full-time salaried workers in the lowest wage Census region (currently the south). After that time, an increase will occur every three years.
4. When must employers be in compliance with the Final Rule?
The effective date of the final rule is December 1, 2016.
5. What action should employers take to ensure compliance?
Employers must ensure that any employees making less than $913 per week are paid on an hourly basis and eligible for overtime under the Fair Labor Standards Act. Employers will also need to ensure compliance with record keeping requirements. Practically, employers will need to address the cultural changes employees will face as they are transitioned from salaried to hourly employees. Training and monitoring will be necessary to ensure that hours are tracked properly and any hours worked over 40 in a week are recorded for overtime purposes. Employers will need to address issues such as working from home, use of cell phones and access to work email after business hours, and start and stop times for employees who are accustomed to working outside of the office or regular working hours. In addition, unionized employers may need to modify labor agreements and bargain over changes and/or the impact of such changes.
6. Is there any hope the Final Rule will be blocked before implementation?
Given the timing, it is unlikely that efforts to block the rule change will be successful. In March of 2016, Senate and House republicans introduced a bill, the Protecting Workplace Advancement and Opportunity Act (S.2707 and H.R. 4773) which, if passed, would have nullified the proposed rule and required the Department of Labor to conduct an economic analysis on the proposal. However, the issuance of the Final Rule has rendered the legislation moot. It has also been anticipated that opponents of the rule may utilize the Congressional Review Act (“CRA”) which allows Congress to pass a joint resolution to disapprove of a new federal regulation within 60 days of a rule’s release. However, such a resolution can only invalidate a rule if the President signs and does not veto the resolution or two thirds of both houses of Congress vote to override any veto. Given the timing of the release of the final rule, it appears unlikely that a resolution under the CRA will have the necessary support to invalidate the rule or that any other attempt by Congress to change the law will win the day prior to implementation while President Obama is still in office and can exercise a presidential veto.