New Overtime Rule Proposed

A few weeks ago, the U.S. Department of Labor (“USDOL”) issued a proposed new rule regarding the requirements that must be met for certain employees to be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  The 60 day comment period for that rule will expire in mid-May, after which time a final version of the new rule will be issued.   No one knows for sure when the new requirements will become effective or even if they will become effective, given what happened to a similar overtime rule that was issued in 2016 (click here for a reminder).   In light of what happened to that rule, most commentators are advising that employers take no action that can’t be undone until the new rule actually becomes effective.

However, all employers should be aware of what the new overtime rule will likely require so they can begin determining if and how it may apply to their employees.  Like the 2016 rule, the proposed new rule changes the minimum amount of salary that must be paid to an employee for that employee to be exempt as an executive, administrative, professional, or highly compensated employee.  In a strange reversal, the minimum salary that must be paid to an employee to qualify under the executive, administrative, or professional exemptions is less than that found in the 2016 rule ($679 a week or $35, 308 a year vs. $913 a week or $47,476 a year).  But to qualify for the highly compensated exemption, the employee must be paid more than in the 2016 rule, a total of at least $147,414 a year vs. $134,004 under the 2016 rule.  At least, $35,308 of that compensation must be in the form of a salary.

As in the 2016 rule, the new proposed rule also permits up to 10% of the minimum salary requirement to be met by the payment of nondiscretionary bonuses and incentive payments, including commissions.  Unlike the 2016 rule, which required these payments to be made at least quarterly, the new rule only requires they be made at least annually.  Instead of at the end of each quarter as in the 2016 rule, the proposed new rule permits a catch up payment to be made in the pay period immediately following the end of a year, if the salary paid to the employee during that year was less than 100%, but at least 90%, of the required minimum amount.  This means an employer could pay an employee up to $3,530.80 in the first pay period after the end of the year to satisfy the minimum salary requirement for the preceding year.

Together, these two changes from the 2016 rule will give employers more flexibility.  Employers will be able to wait until near, or even after, the end of the year to determine the mix of nondiscretionary bonuses and incentive payments that may be needed to meet the minimum salary requirement for the employees they want to treat as exempt from the FLSA’s overtime pay requirements.

As was the case with the 2016 rule, no changes are proposed in the job duties tests for any of the exemptions affected by the new rule.  It is important to remember that just paying an employee the required minimum salary will not qualify them as exempt from the FLSA’s overtime pay requirements.  The employee must also meet the job duties requirements of one of the above exemptions. Whether customer service representatives and producers would meet any of those requirements was a subject I addressed in a few blog posts in 2016 (click here for the last such post which has links to previous posts.)

In summary, it was my opinion that the most likely exemption under which customer service representatives could qualify for non-exempt status was the administrative exemption.  A opinion letter issued by the USDOL about a year ago has created a roadmap for such employees to meet the job duties requirements of that exemption (click here for an explanation of the opinion letter).

Unfortunately, no such roadmap exists for producers.  Their most likely exemption is the highly compensated employee one, but that would require the payment of a salary of at least $35,308 and total annual compensation of at least $147,414.   The producer could no longer be compensated on a commission only basis, which many agency owners will not like, and many producers will probably not make the required minimum amount of compensation, in any event.




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