• New Rule on Overtime Compensation Scheduled to Take Effect December 1
  • September 12, 2016 | Author: Matthew T. Fitzsimmons
  • Law Firm: Nicola, Gudbranson & Cooper, LLC - Cleveland Office
  • Effective December 1, the new U.S. Department of Labor (DOL) rule on paying employees overtime compensation will go into effect-unless Congress intervenes. The changes to the old rule are significant.

    The new rule changes the salary basis test for the white collar exemption, essentially doubling the minimum annual salary requirement for an exemption from $455 per week, or $23,660 annually, to $913 per week, or $47,476 annually.

    It also increases the compensation requirement of employees who qualify as exempt "highly compensated" individuals from $100,000 annually to $134,004 annually.

    The new rule allows certain bonuses and incentive payments, such as commissions, to count towards up to 10% of the new salary requirement of $47,476. Employees who earn more than the new salary threshold are still subject to the duties test to determine eligibility for overtime. Significantly, the new rule does not make any change to the duties test.

    Also under the new rule, there will be future automatic updates to the salary threshold every three years. The first update for any adjustment will be January 1, 2020.

    One question that arises is if an employee is paid a salary rather than an hourly wage, does that mean the employee will not be eligible for overtime compensation if he/she earns more than $47,476 annually? The answer is no, not necessarily. Under both the new and old rules, workers have to perform very specific duties to meet the exemption from being paid overtime. The exemptions include executive, administrative, professional, computer, outside sales and highly compensated employees. The exemptions presently in effect are very specific, as stated in a U.S. Department of Labor (DOL) Fact Sheet:

    EXECUTIVE EXEMPTION

    To qualify for the executive employee exemption, all of the following tests must be met:
    • The employee must be compensated on a salary basis at a rate not less than $455 ($913 under the new rule) per week;
    • The employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
    • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
    • The employee must have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
    ADMINISTRATIVE EXEMPTION

    To qualify for the administrative employee exemption, all of the following tests must be met:
    • The employee must be compensated on a salary or fee basis at a rate not less than $455 ($913 under the new rule) per week;
    • The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
    • The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
    PROFESSIONAL EXEMPTION

    To qualify for the learned professional employee exemption, all of the following tests must be met:
    • The employee must be compensated on a salary or fee basis at a rate not less than $455 ($913 under the new rule) per week;
    • The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
    • The advanced knowledge must be in a field of science or learning; and
    • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
    CREATIVE PROFESSIONAL EMPLOYEE EXEMPTION

    To qualify for the creative professional employee exemption, all of the following tests must be met:
    • The employee must be compensated on a salary or fee basis at a rate not less than $455 ($913 under the new rule) per week, and
    • The employee's primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
    COMPUTER EMPLOYEE EXEMPTION

    To qualify for the computer employee exemption, the following tests must be met:
    • The employee must be compensated either on a salary or fee basis at a rate not less than $455 ($913 under the new rule) per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour (unchanged by the new rule);
    • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below; and
    • The employee's primary duty must consist of:
      • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
      • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
      • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or>
      • A combination of the aforementioned duties, the performance of which requires the same level of skills.
    OUTSIDE SALES EXEMPTION

    To qualify for the outside sales employee exemption, all of the following tests must be met:
    • The employee's primary duty must be making sales, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer, and
    • The employee must be customarily and regularly engaged away from the employer's place or places of business.
    HIGHLY COMPENSATED EMPLOYEE EXEMPTION

    Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 ($134,004 under the new rule) or more are exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee.

    BLUE COLLAR WORKERS

    The exemptions do not apply to manual laborers or other "blue collar" workers who perform work involving repetitive operations with their hands, physical skill and energy. Non-management employees in production, maintenance, construction and similar occupations, such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers, are entitled to minimum wage and overtime premium pay under the Fair Labor Standards Act, and are not exempt-no matter how highly paid they might be.

    One consequence of these new rules is that employers will have to track their workers' hours carefully. Current salaried workers can be kept on a salary, but the employer must still track their hours and pay them overtime if they put in more than 40 hours a week.

    So long as a business does at least $500,000 in annual sales or receipts, the new overtime rule applies to all sizes of employers-not just to employers with a certain minimum number of employees.

    The federal overtime rule has always caused confusion for employers and employees as to who is-and is not-entitled to overtime pay. We suggest that an employer review all job classifications to ensure the correct exemption status. For positions where the salary does not meet the foregoing new threshold, an employer will have to consider: increasing the salary of an employee who meets the duties test to the new salary level to retain his/her exempt status; reducing or eliminating overtime; paying the overtime premium; or hiring additional employees.

    The DOL has compiled some frequently asked questions about the new overtime rule. Please contact me if you have any questions about implementing the new rule.