New Overtime Rule – Who Is Exempt?

Judging by the reaction of the audience at a presentation on the new overtime rule I made a couple of weeks ago, that rule is going to create significant problems for independent insurance agencies.  I barely had time to introduce myself before the first question came and they just kept coming.  The focus of many of the questions was whether customer service representatives and producers could be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).

I addressed this issue in a post in early 2015.  At that time, the required minimum salary for an employee to be considered exempt was only $455 per week, or $23,660 per year.  I say only because as those of you who have followed my blog posts on the new overtime rule know, the required minimum salary will more than double to $913 a week, or $47,476 a year, on December 1, 2016.  That will significantly increase the financial cost of treating an employee as exempt, which cost should only be incurred if a particular employee can satisfy the duties tests for exempt employees.  If not, the employer is wasting their money and will need to look at other options.  (Click here for a more recent post on what those options are.)  

In my 2015 post, I discussed the most likely exemptions that could apply to customer service representatives and producers.  What was said in that post still applies, with one exception.  The commissioned sales person exemption will not apply to producers or any other employee of an independent insurance agency because that exemption only applies to employees of a “retail sales” business, and the U.S. Department of Labor (“USDOL”) has issued regulations that state businesses that sell insurance are not engaged in “retail sales” for purposes of that exemption.

As I told my audience, that leaves the administrative exemption as the most likely one for customer service representatives and the highly compensated employee exemption as the only one available for producers, unless they operate as door to door sales persons who have no office and meet with their customers only at the customers’ home or place of business. That is not how most producers perform their duties.  Producers will not qualify for the administrative exemption because the USDOL has ruled that an employee whose primary duty is the selling of a product or service cannot qualify for that exemption.  It will be very difficult to argue that a producer’s primary duty is not the sale of insurance products, especially if their main source of compensation is commissions from the sale of such products.  

Exceptions to the above general statements are possible because whether a particular employee is exempt from the overtime pay requirements of the FLSA is a case by case determination that is dependent on the duties actually performed by that employee. However, I told my audience that unless their producers were earning at least $134,004 a year, of which $47,476 was paid as a salary (highly compensated employee exemption), as of December 1, 2016, they would probably be required to pay their producers overtime for any hours worked in excess of 40 in any one work week.  That is true today for any producer who is not making the current threshold amount of $100,000 a year, of which at least $23,660 is paid as a salary.

As with any law, the fact I have never heard of a producer suing an agency for overtime pay does not mean that producers who don’t qualify for the highly compensated employee or outside sales exemptions cannot do so.  It just means no one has tried to do so for any number of reasons.  As explained in my 2015 post, the consequences of not paying required overtime to an employee can be severe and employees have an incentive to file such lawsuits.

For more detailed information on this subject, see the updated question and answer white paper prepared by IIABA and attend its seminar on this subject that is scheduled to begin at 2 p.m. on August 30, 2016.