Compoundings July 2016 • 41 • Vol. 66 No. 7

RULES & REGS

The U.S. Department of Labor (DOL) ended months of speculation when it published its new overtime rule on May 23, 2016, raising the white collar overtime

exemption threshold under the Fair Labor Standards Act (FLSA). The new regulations take effect on December 1, 2016. The overtime rule resulted from a March 2014 memo from President Obama to the Secretary of Labor, directing the DOL to update the threshold because “regulations regarding exemptions for the Act’s overtime requirement, particularly for executive, administrative and professional employees have not kept up with our modern economy.”

As background, the FLSA, first enacted in 1938, sets the federal minimum wage and guarantees overtime compensation at a rate of time and one half to certain individuals who work in excess of 40 hours per week. The FLSA does carve out exemptions to the overtime pay requirement for individuals in certain administrative, professional, or executive capacities who are paid a certain minimum salary.

The DOL’s revised overtime pay regulations increase the salary threshold for the overtime exemption from $455 a week ($23,600 annually) to $913 a week ($47,476 annually). Any salaried employee earning less than the new threshold after December 1, is entitled to earn overtime, regardless of his or her job duties. Accordingly, ILMA members, as employers, will need to have accurate hourly data and an audit trail for the hours worked by their employees to ensure compliance with the new threshold.

It is important to note that employers can factor in any nondiscretionary bonuses or commissions that are paid on at least a quarterly basis. These nondiscretionary amounts may be considered up to 10 percent of the total $47,476 salary threshold.

Highly compensated employees who perform nonmanual work are also exempt from the overtime requirement of the FLSA. The DOL’s new rule increases the threshold for these employees to $134,000 from $100,000.

A significant issue for employers then, including ILMA members, is whether salaried employees earning between $47,477 and $133,999 are eligible for overtime pay. The DOL did not change the “duties test,” which is applied to this group of employees. In order for an employee in this “wage band” to be exempt from overtime compensation, he or she must meet one of the separate duties tests for executive, administrative and professional employees.

For the executive exemption to apply, the employee must exceed the salary threshold; he or she must manage the entire business, a division, a department or a subdivision; he or she must have the ability to direct the activities and day-to-day work of at least two employees; and he or she must be able to hire or fire an individual. Further, if that executive employee does not possess full authority to hire and fire, their “suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.”

For the administrative duties exemption to apply, the employee must

exceed the salary threshold, the employee’s primary role must be to perform office work directly related to management or business operations and

the employee must exercise

The Department of Labor’s New Overtime Rule Daniel T. Bryant