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In
his 2015 State of the Union Address last
January, President Obama said employees should get
the overtime they've earned. He then directed the
U.S. Department of Labor (DOL) to review and amend
the overtime rules under the Fair Labor Standards
Act (FLSA) to make more workers eligible.
On June 30, the DOL took steps in that direction,
proposing to significantly change the federal
overtime rules. However, the path from the proposed
rule to a final rule could take several months — and
could be derailed.
Current Overtime Rules
Overtime pay is defined as one-and-one-half times an
employee's usual pay rate for hours worked exceeding
40 per week. Today, for employees to be ineligible,
they must meet a three-part "white collar
exemption."
To be exempt from overtime pay, an employee must
generally meet the following requirements:
1. Be
paid a predetermined and fixed salary.
2. Be
paid above a specific salary threshold, currently
$455 a week ($23,660 for a full-year worker). The
threshold was last increased in 2004.
3. Primarily
perform executive, administrative, or professional
duties, as defined in DOL regulations.
What Is Being Proposed?
Under the DOL proposal, the salary threshold for the
white collar exemption would increase to
approximately $970 a week ($50,440 for a full-year
worker) and would be adjusted annually. The exact
amount is estimated in the proposed rule because it
relies on Bureau of Labor Statistics compensation
data that may need to be updated by the time the
rule change would take effect in 2016 or later.
If the increased exemption in the proposed rule is
finalized, the DOL estimates that nearly 5 million
workers will become newly eligible for overtime pay.
The DOL is also proposing to set the "highly
compensated employee annual compensation level" at
$122,148 (from $100,000) for retirement plan
discrimination testing purposes. This amount would
also be adjusted annually.
Designed to "Restore Effectiveness"
The purpose of raising the salary threshold, and
making it annually adjustable, is to "restore the
effectiveness of the salary test" and to "ensure
that the Fair Labor Standards Act's intended
overtime protections are fully implemented," the DOL
stated.
The DOL explained that the changes seek "to update
the salary level test to ensure that the FLSA's
intended overtime protections are fully implemented,
and to simplify the identification of
overtime-eligible employees, thus making the white
collar exemptions easier for employers and workers
to understand."
Job Duties Test
Here are some basic principles that guide job status
determination for three categories of white collar
jobs, taken from a DOL Wage and Hour Division fact
sheet.
Executive exemption:
·
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.
·
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:
·
The employee's primary duty must be the performance
of office or nonmanual work directly related to the
management or general business operations of the
employer or the employer's customers.
·
The employee's primary duty must include the
exercise of discretion and independent judgment with
respect to matters of significance.
"Learned professional" exemption:
·
The employee's primary duty must be the performance
of work requiring advanced knowledge, defined as
work that is predominantly intellectual in character
and work requiring the consistent exercise of
discretion and judgment.
·
The advanced knowledge must be in a field of science
or learning.
·
The advanced knowledge must be customarily acquired
by a prolonged course of specialized intellectual
instruction.
What Other Changes Might be Ahead?
The proposed modifications to the overtime pay rule
are significant, but many related questions remain
that may soon be addressed. Here are a few:
The Job Duties Test. The
proposed rule did not tamper with the job duties
test. However, the DOL states that it is "seeking
comment on whether the standard duties tests are
working as intended to screen out employees who are
not bona fide white collar exempt employees."
Inclusion of Bonuses. The
DOL will consider whether "nondiscretionary bonuses,
such as certain production or performance bonuses,"
should be added to an employee's salary to determine
eligibility or exemption from overtime pay
requirements.
Working on Electronic Devices after Hours. When
it first announced that it was examining overtime
rules, the DOL was asked to determine whether
employees should be compensated for time spent on
devices such as smartphones and laptops, doing work
after hours. The DOL didn't tackle that question in
the proposed rule but stated it would ask for input
on the topic in coming weeks.
What Happens Now?
There's a 60-day comment period for businesses and
other interested parties to provide feedback to the
DOL. The proposal immediately triggered criticism
from some employer and industry groups. For example,
the National Retail Federation, the National
Restaurant Association and the U.S. Chamber of
Commerce issued statements that they oppose the
changes. These and other groups argued that
increased overtime costs may force employers to cut
back on workers' hours, limit opportunities for
employees and negatively affect businesses.
For its part, the DOL said it would finalize the
proposed rule "only after reviewing and considering
all the comments" it receives. Given the stakes,
opponents are likely to not only comment but to urge
Congress — and perhaps take legal action — to
modify, delay or drop the proposal. We'll keep you
updated.
Contact Us
For more information, please contact
Boris Benic, CPA,
at 516-248-7361,
or click here to email Boris.
He would be happy to address any questions you may
have.
Source: Bizactions
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