New Overtime Rule. Summary and FAQ.

 

*On November 22, 2016 a Texas court issue a preliminary injunction blocking the new overtime rule. It will not go into effect on December 1st. *

The US Department of Labor’s new overtime rules go into effect on December 1st. The new rules are getting a lot of hype. However, other than the increase in salary level, not much has changed. Still, it’s a good opportunity to review your employment practices and make sure you’re in compliance.  See below for a list of the most frequently asked questions that I’ve been getting on the new rules.

To summarize, here are the three things that have changed from the old rules to the new.

  • Salary level has increased from $455 per week to $913 per week and will be adjusted every three years.
  • 10% of the required salary can be met by paying non-discretionary bonuses. These bonuses must be paid no less frequently than quarterly.
  • Salary level for the Highly Compensated Employee category has increased from $100,000 per year to $134,004 per year.

The answers to these frequently asked questions only touch on the implications from the federal Fair Labor Standards Act (FLSA) and do not address state wage and hour rules which in some cases may be more restrictive. For example, in California, employers are not allowed to pay non-exempt salaried employees using the fluctuating workweek method. The answers to these questions are not legal advice, I’m just regurgitating information that is publicly available in a concise and easy to read format.

 FAQs

I currently have salaried exempt employees that do not meet the new salary level test. They are upset about going to non-exempt status and having to punch a clock. Do I have any flexibility with how they record their hours?

If these employees work a regular fixed schedule every week you can keep their regularly scheduled hours on record and only record when they vary from their fixed schedule. This is referred to as “exception reporting”.

For other employees whose hours vary from week to week the minimum record you need is their daily hours.  You are not required by the FLSA to keep start and stop times.

Some employers keep more detailed time records to protect themselves in the case of employee complaints regarding hours worked.

 If we have salaried exempt employees who only work part-time, do they have to be paid the $913 amount, or can I prorate it?

The rules make no distinction between part-time and full-time employees. All salaried exempt employees must meet the $913 per week salary level requirement. You are allowed to prorate the salary in the first and last week of an employee’s employment.

 Can I keep an employee on salary if she goes from exempt to non-exempt because her salary isn’t high enough to meet the $47,476 amount?

A non-exempt employee may be paid hourly or salary. Usually, it makes more sense for employers to pay non-exempt employees hourly. If you have good reasons for keeping an employee on a salary you may do so but you still have to pay overtime when the employee works more than 40 hours. If you are planning on paying the employee time and half their rate when they work more than 40 hours, that’s the same as paying them hourly. If you are planning to pay the employee a salary to cover all hours and then pay an additional half for each overtime hour, that’s called the “fluctuating work week method”. There are additional requirements for using this method including: an understanding with the employee, paying the salary no matter how few hours are worked in the week, and making sure the salary is high enough to cover minimum wage for all hours in the busiest weeks. You can also pay non-exempt employees a salary intended to cover a certain number of hours, say 45 per week, and incorporate both half time for the hours 40-45, and time and one half after 45.

 Does our annual holiday bonus count towards the 10% amount in the new rules? No. Only non-discretionary bonuses, incentive payments, and commissions can count towards the 10%. Annual holiday bonuses have generally been treated as discretionary bonuses in the past by the US Department of Labor. And remember, the 10% in bonuses must be paid out no less than quarterly.

 We have a seasonal employment schedule and I have some managers that meet the executive duties test but they don’t make $47,476 per year because they don’t work year-round. Are they still exempt if they make $913 per week while they are working?

Yes, the salary level test is applied on a weekly basis.

 I manage a non-profit. I heard that the Department of Labor is not enforcing the new overtime rule for non-profits until March 2019. Is this true?

No. There is a limited non-enforcement policy but it only applies to “providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds”.

 I saw something that said that salaried exempt employees must be paid their full salary every week. So does this mean we can’t deduct for sick or vacation days?

No. You may deduct money from an employee’s weekly salary for sick or vacation days according to the salary basis rules found in 29 CFR 541.602 which are unchanged by this new rule.  You may always deduct leave from an employee’s leave account when that leave pays out the usual salary but only results in a lower leave balance. That has no effect on the amount of salary paid.

 Are teachers still exempt from the overtime requirements?

Yes. Teachers, academic administrative staff, doctors, lawyers, outside sales employees and other categories of exempt employees are still exempt. Those sections of the rule did not change.