9 FAQs you need to read regarding the DOL's New Overtime Rule
The Department of Labor has roughly 192 FAQs regarding the new overtime rule. So, naturally, we read through all 192 questions and answers and have picked a few of our favorites. We believe that the selection below offers some great insight into the new legislation and are some common questions that we receive. We hope you enjoy this small sampling.
Q. What are the new salary and compensation levels under this Final Rule?
When this Final Rule takes effect on December 1, 2016, the "standard" salary level will increase to $913 per week (equivalent to $47,476 annually for a full-year worker), up from $455 per week ($23,660 annually). The total annual compensation requirement for highly compensated employees will increase to $134,004 per year, up from $100,000 per year. These levels will update automatically every three years, beginning on January 1, 2020, to maintain the earnings percentiles set in this Final Rule.
Q. May employers use bonuses to satisfy part of the new standard salary level test?
Yes. The Department is changing the regulations to allow nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability (e.g. a bonus based on the specified percentage of the profits generated by a business in the prior quarter). The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount attributable toward the EAP standard salary level is capped at 10 percent of the required salary amount.
For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on a quarterly or more frequent basis.
Q. With regard to the non-discretionary bonus and catch up payment provisions, does “quarterly” mean calendar quarter? Fiscal quarter? Or is it up to the employer’s discretion?
No, it does not mean the calendar quarter. It is the employer's discretion when the quarter will begin.
Q. May employers make a catch-up payment in the event that an employee doesn't receive enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to remain exempt?
Yes, if an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to retain their exempt status the Department permits a "catch-up" payment at the end of the quarter. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13 week period). Any such catch-up payment will count only toward the prior quarter's salary amount and not toward the salary amount in the quarter in which it was paid. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the quarter.
Q. If I have a job, which meets an exemption test, am I able to reclassify only those who are below the new minimum to non-exempt and allow those that are over to remain exempt? Or, does the entire classification need to be exempt or non-exempt?
The "white collar" exemptions require an employee to be paid on a salary basis, paid above a certain salary level, and meet the respective duties test. If an employee meets the duties test of an executive, administrative, or professional employee, and meets the salary basis requirement, and meets or exceeds the salary level requirement, they would meet the requirements for the exemption. If they fail to meet any part of the criteria, they would not meet the exemption and would therefore be non-exempt. The exemption is applied on an employee by employee basis, not to a particular classification. Keep in mind the salary level and salary basis requirements do not apply to outside sales employees, licensed or certified doctors, lawyers and teachers. Employees in these occupations who meet the duties test are exempt regardless of their salary.
*****simplyHR advises that you assess the additional risks associated with reclassifying only certain employees. For example, if all the employees below the new minimum salary amount are female and all those who are over are male, could this be considered discriminatory? We believe there can be some additional risk. Make sure to consider all risk factors before proceeding with a change similar to this. *****
Q.Are employers in compliance if they follow the annualized amounts? (Or do they have to make sure they are always in compliance each week?)
An employee's exempt status - and, if nonexempt, the employee's right to overtime pay - is determined on a weekly basis. Generally, to retain exempt status, an employee must satisfy the duties test and earn at least $913 per week.
Q. Please clarify what a highly compensated employee must be paid weekly and annually and how nondiscretionary bonuses and commissions factor in.
When the Final Rule takes effect on Dec. 1, 2016, employees who only satisfy the HCE duties test may qualify for exemption if they earn at least $134,004 per year and at least $913 per week. HCE employees must receive 100% of the $913 weekly threshold on a salary or fee basis, but non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy the remainder of the $134,004 total annual compensation requirement.
Q. The standard salary level is based on full time exempt employment. How do you prorate this if the exempt position is not full time? Example - a store has two managers- one works 3 days a week and the other 4 days a week?
An employee's exemption status is always determined on a workweek basis. Unless the employee falls under one of the EAP occupations that is not subject to the salary level requirement (e.g., doctors, lawyers, teachers, outside sales), the employee must satisfy the full standard salary level test ($913 per week, beginning on Dec. 1, 2016) if they work any amount of time in the workweek. The salary level is not prorated for part-time employees.
Q. Do employees have to be paid at least the 913.00 in a week even if an entire day was not worked of that week. So employees actually work only 4 days and not 5? Do the employees have to use vacation days to cover the pay for that date? How about if they don't have any paid vacation or paid time off?
To qualify for any of the white collar exemptions, employees generally must meet the salary basis test, the salary level test, and the duties test. Generally, if an exempt employee subject to the salary level test works for any amount of time during their workweek, they must receive at least the full standard salary level ($913 per week, beginning on Dec. 1, 2016) to retain their exempt status. To be paid on a salary basis, an employee's pay cannot fluctuate according to the quality or quantity of their work. However, according to 29 CFR 541.602(b), employers may deduct from an employee's salary for full-day absences under certain circumstances. For example, if an employee is absent from work for one or more full days for personal reasons other than sickness or disability, the employer may make a deduction without changing the exempt status of the employee.
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