Just this morning, the Department of Labor (“DOL”) announced that the proposed regulation, extending overtime to over 4 million workers, is being published in its final form.
Following the proposed rule, which received over 270,000 comments from interested stakeholders, the final rule provides the following key provisions:
- “White collar” (executive, administrative, and professional) employees must be paid a salary at the 40th percentile of earnings for full-time workers in the lowest-wage Census Region, which, at this time is a threshold of $913 weekly or $47,476 annually, for a full-year worker. (This is slightly lower than the proposed threshold, which was at the 40th percentile of all full-time salaried workers.)
- To qualify as “exempt” under the exemption category of Highly Compensated Employees (“HCE”), the total annual compensation must be at least as high as the 90th percentile of full-time salaried workers nationally, which, at this time is a threshold of $134,004.
- There is a mechanism for automatically updating the salary and compensation levels every three years to maintain the salary threshold at the levels provided above.
- Employers may use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the above standard salary threshold.
Please note that the above is not an exhaustive list of all of the provisions of the final rule, which will go into effect on December 1, 2016.
Although this rule makes important changes to salary thresholds that have been relied upon by employers, it is important to note areas that the final rule does not change. “White collar” employees still must meet the same duties tests. In other words, paying an employee a salary higher than the salary threshold does not mean that the employee is automatically exempt from overtime.
While employers are given longer than we initially expected to fully implement this rule, now is the time to start evaluating employee pay statuses, including hours worked outside of the office. In some cases, it may be more beneficial to the organization to give an employee a raise than to attempt to limit or track hours worked outside of the office. However, in some cases, it will be more financially sound to change an employee’s pay status.
Where an employee’s status is changed from exempt to non-exempt, one of the most important steps to take is to ensure that it is clear to the employee that he or she must report all work performed outside of the office. Employers also may direct “non-exempt” employees not to perform any work outside of the office, except with prior approval. However, this does not change the legal reality that, for non-exempt employees, all work must be compensated, whether approved or not approved.
One complication to changing an employee’s status from “exempt” to “non-exempt” is when the employee, once “exempt,” has been given an iPhone or other technological device that it used to contact the employee outside of the office. When the employee’s status changes to “non-exempt,” every work-related call or email needs to be compensated. Where any work, including calls and emails, add up to over 40 hours in a workweek, the employee must be compensated with overtime, or time and a half, for all time worked over 40 hours. For employees who the employer has become accustomed to relying upon at all hours, this could lead to an appreciable overtime obligation.
The best advice is to contact a competent employment attorney to help you navigate the new regulations and prepare for full implementation.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
