Department of Labor's Final Overtime Rule Change Delayed

Posted in December 2016 on 12/14/2016

DOL's Final Overtime Rule Change Delayed (Download a PDF of this article)

Earlier this year, the Department of Labor adopted its long-awaited final rule regarding who is exempt from overtime pay under the executive, administrative, and professional exemptions – i.e., the so-called “white collar” or “EAP” exemptions. This new rule was set to take effect on December 1, 2016, but on November 22, 2016, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas entered a nationwide injunction blocking the U.S. Department of Labor from implementing the rule. On December 1, 2016, Department of Labor Secretary Thomas Perez, Wage and Hour Administrator David Weil and Assistant Administrator Mary Ziegler appealed the injunction decision. This litigation is going to require employers who already implemented changes to their employee position classifications to make some tough decisions. Employers should continue to follow the current regulations until the appeal is concluded. It is possible that the court could expedite the hearing or grant a stay of the litigation in the near term, requiring employers to comply with the final rule, so it will be important to monitor the situation. We will continue to follow the pending litigation closely and will report any changes on our blog located at www.workplacewise.com. Below find a summary of the current regulations (in effect until further notice) and the final rule.

Salary Level:

1. Current regulations set the salary level at $455 a week ($26,600/ year), which was established to exclude the lowest 20th percentile of the country’s lowest-wage region and lowest-wage industry.

2. The Final Rule keeps the 40th percentile measure proposed in the NPRM, but looks to the 40th percentile of full-time salaried workers in the lowest-wage Census Region (currently, the South), which results in a salary level of $913 a week ($47,476/year).

Highly Compensated Employee (“HCE”) Compensation Level:

1. Current regulations establish a salary level for the HCE exemption at $100,000 annually.

2. The Final Rule uses the same 90th percentile of full-time non-hourly workers on a national basis as was proposed in the NPRM, which number has since gone up to $134,404 annually.

Automatic Adjustments:

1. Current regulations do not require periodic or automatic adjustments to the salary level.

2. The Final Rule does require regular, periodic updates to maintain the salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region and HCE compensation at the 90th percentile nationally, but calls for updates every three years rather than annually.

Bonuses:

1. Current Regulations do not allow any portion of non-discretionary bonuses or commissions to count toward the salary level requirement.

2. The Final Rule allows up to 10% of certain non-discretionary bonuses, incentive payments, and commissions (so long as they are paid at least quarterly) to count toward the required salary level.

Duties Tests:

1. Current regulations impose a “duties” test in addition to the salary level and salary basis requirements for each exemption.

2. The Final Rule makes no changes to the standard duties tests.

Effective Date:

The effective date will now be determined by the Court. If implementation of the Final Rule is ultimately approved, the automatic updates to the salary thresholds thereafter will occur every three years, beginning on January 1, 2020.

Note that in addition to this issue, the Department of Labor has been cracking down on other overtime pay violations, including failure to pay additional overtime due on performance-based and production-based bonus awards and other incentive payments made to non-exempt employees. The agency has also been ramping up enforcement efforts regarding misclassification of employees as independent contractors. The additional oversight from the Department of Labor requires companies to be vigilant about its wage and hour administration.

Megan Erickson Moritz is a member at BrownWinick and practices primarily in employment law and commercial litigation. You can reach Megan at (515) 242-2455 or moritz@ brownwinick.com.

Elizabeth A. Coonan is a member at BrownWinick and practices primarily in employment law, business immigration and workers’ compensation. You can reach Elizabeth at (515) 242-2085 or coonan@brownwinick.com.