DOL rule change on white-collar overtime creates some common questions
The new DOL rules governing the overtime exemption for white-collar workers may impact as many as 4.5 million American workers. Many employers have similar questions. Here are some that came up during our recent webinar on this topic, which is also available to view in its entirely on-demand here: White-collar overtime exemption webinar >>
- Who is considered an exempt employee?
An exempt employee is one that satisfies the salary basis test, the salary level test, and the duties test found under the Fair Labor Standards Act’s (“FLSA”) white collar exemption regulations. While there is not necessarily a black and white answer to this question (as it depends on the facts and circumstances in most cases), the regulations do provide certain stated exemptions for teachers, practicing and licensed lawyers, and medical doctors. The white-collar exemption can be found here: White-collar employee exemption under FLSA >>
- How do we address those workers that only work part-time?
The FLSA does not specifically address part-time employment, but the determination of part-time or full-time does not change the application of the FLSA. As a reminder, nonexempt workers are only entitled to overtime for hours worked over 40 in a given workweek.
- Does an employee have to satisfy all three tests under the regulations in order to be considered exempt?
Yes, an employee must satisfy all three tests — salary level, salary basis, and duties — in order to be considered exempt from the overtime rules.
- Does the salary level test permit bonuses to be included in the salary level calculation?
Under the previous regulations, bonuses were not included in the calculation of the salary level test, except when calculating the total annual compensation under the highly compensated employee test. However, the new regulations permits nondiscretionary bonuses, such as performance bonuses, that are paid quarterly or more frequently to satisfy up to 10 percent of the minimum standard salary test requirement.
- What is the highly compensated employee definition?
Under the previous white-collar exemptions, a highly compensated employee who made $100,000 on a salary basis and had a primary duty of office or nonmanual work and regularly performs one or more of the duties described under the exemption, administrative, or professional employee categories in the regulations would qualify for this exemption. Under the new regulations, the DOL has set the salary level for a highly compensated employee at $134,004.
- Can I legally impose a cap on hours of employees?
Generally, under the FLSA, an employer can limit the number of hours an employee works as long as it does not violate any current contract or agreement.
- Can I pay exempt workers on an hourly basis?
An exempt worker under the white-collar exemption must meet all three tests — salary level, salary basis, and duties - in order to be considered exempt. Therefore, an exempt worker cannot meet the requirements under the regulations if he or she is paid on an hourly basis because this would fail to satisfy the salary basis test.
- What changed in the final regulations?
The final regulations introduced quite a few new changes and some deviations from the proposed rule. The following are highlights of some of the most important changes:
- The salary level threshold for a white collar worker will rise from $455 per week ($23,660 annually) to $913 per week ($47,476 annually), effective December 1, 2016.
- The salary level threshold for an employee to satisfy the highly compensated employee exemption will rise from $100,000 to $134,004, effective December 1, 2016.
- The salary level thresholds will increase every three years and will be tied to the 40th percentile of full-time salaried workers in the lowest-wage Census region and the 90th percentile of earnings for full-time salaried workers nationally for the highly compensated employee threshold.
- Employers will be able to include nondiscretionary bonuses to calculate up to 10% of an employee’s salary level.