DOL Issues Long Anticipated Final Rules-Overtime Regulations

May 18, 2016

On May 18, 2016 the Department of Labor (DOL) released the long anticipated final rules defining Overtime Exemption requirements, including guaranteed salary requirements, for the White Collar Exemptions- Executive, Administrative, Professional and Highly Compensated.

Key provisions of the final rule are as follows:

  1. The new rule goes into effect December 1, 2016.
  2. The new guaranteed salary requirement is a minimum of $913.00 per week ($47,476.00 annually). This salary requirement applies to the Executive, Administrative and Professional Exemptions )
  3. For the Highly Compensated Exemption, the new salary requirement is $134,004.00.
  4. The final regulation establishes a mechanism to update the salary requirement level every three (3) years.

Of noted importance, and as it relates to the Executive, Administrative and Professional Exemptions (Highly Compensated excluded), is the ability for the employer to apply Non- Discretionary Bonuses and Incentive Payments (including a valid commission payment) to satisfy up to 10% of the guaranteed salary level requirement of $47,476.00. Please note that Non-Discretionary Bonuses and Incentive Payments, such as commissions, must be well defined and meet the DOL's requirements under the regulation.

The DOL did not change any of the White Collar Exemption duties tests. Further, the DOL permits the compliant use of the Fluctuating Workweek Method of Payment which is a pay plan that may be recommended for select positions/cases by SESCO.

Otherwise, there are no other significant changes except for the following:

  1. Higher Education: Bona fide Teachers, Coaches, Graduate Assistants, and Academic Administrative Personnel: Each of these positions is not affected by the new rules. SESCO clients in this sector should contact us to discuss in further detail as each of these position terms are very well defined.
  2. State and Local Governments: The final rules does not alter the current requirements for state and local governments or subdivisions thereof. The use of "Comp Time," hours of work provisions for police and firefighters, elected officials and staff and legislative branch employees will not be affected.
  3. Non-Enforcement for provider of Medicare-funded services for individuals with Intellectual or Developmental Disabilities in residential homes and facilities fifteen (15) or fewer beds: Enforcement of the final rule is delayed until March 17, 2019 for those SESCO clients who meet this definition of a Provider.

SESCO Staff Recommendation- What Employers Should Do NOW!

  1. Assess your organization's current liability by conducting a thorough review of salaried positions. Discuss and confirm appropriate application of the White Collar Exemptions based on the duties test alone.
  2. Assess the hours of work performed by those salaried positions of which their current salary is less than the new guaranteed salary requirement. Determine if the position(s) can be limited to 40 hours of work or less per work week.
  3. If necessary, and based on if hours worked exceed 40 in a work week (overtime), consider altering the position's compensation structure to ensure compliance:
    • Increase the guaranteed salary to the new required threshold of $47,476.00.00 ($913.00 per week). It is important to note that simply increasing the salary may not make the position exempt from overtime. The position must also meet the duties tests as outlined in the White Collar Exemptions.
    • Change the salary to an hourly rate of pay with overtime (1 1/2 times the regular rate of pay) for any hours that exceed 40 in a work week.
    • Implement the Fluctuating Workweek Method of payment. This method of payment provides a guaranteed salary per week with a straight time earnings calculation providing half (1/2) time for hours that exceed 40 in a work week. Please contact SESCO if you wish to discuss this method of payment further.
    • Revise the current pay plan implementing a Non-Discretionary or Incentive element applying up to 10% to the salary threshold.
    • For Retail Organizations, implement the partial Retail 7i exemption from overtime. This partial exemption requires that the employee earn at least half (51%) or more of the total compensation from a Non-Discretionary Bonus or Incentive pay plan. Further, the position must yield an hourly rate of pay of least one and one half (1 1/2) time minimum wage (or $10.88/hour) for all hours worked. This partial exemption does not remove the requirement for an employee to maintain a true and accurate time card for all hours worked.
  4. Contact SESCO to schedule a Wage and Hour compliance audit at (423) 764- 4127 or sesco@sescomgt.com. If your organization is not currently a retainer client of SESCO or a member of a retained SESCO Association, please call us to explore this exclusive offering which will provide the audit and ongoing telephone/email support. Click HERE to review SESCO's Service Agreement.