The New Overtime Rule – What You Need to Know

Last July, I wrote a post about a new rule for the payment of overtime that had recently been proposed by the U.S. Department of Labor (“USDOL”).  That proposed rule was made final by the USDOL on May 23, 2016, with its formal publication in the Federal Register.  The final rule differs in several ways from the proposed rule that was described in my earlier post.  Those differences concern the amount of the minimum salary that must be paid before an employee can be considered exempt from the overtime pay rules, how often that minimum salary amount will be changed, the standard for determining the new minimum salary amount, the use of non-discretionary bonuses to satisfy part of the minimum salary amount, and the effective date of the new minimum salary amount requirement. (Click here for an IIABA summary of the new rule and how it applies to insurance agencies.)

In order:

1.  To be considered exempt from the overtime pay rules, an employee must be paid a salary of at least $913 a week, or $47,476 a year.  Those numbers under the proposed rule were $921 a week and $47,892 a year.  Not much of a difference, but every dollar counts.  It is important to remember that paying the required minimum salary does not mean an employee is exempt from the overtime rules. To be exempt from those rules, an employee must be paid the required minimum salary and satisfy the other requirements of a recognized exemption from those rules.  The three exemptions that would most likely apply to employees of an insurance agency are the administrative, executive, and outside sale exemptions.  I discussed two of these exemptions as they might apply to insurance agency employees in a earlier post.  It turns out that my suggestion in that post that the retail sales exemption may be used for producers who are paid mostly on commission is not going to work, as the USDOL has stated in the regulations adopted for that exemption that insurance is not considered to be a retail business for purposes of that exemption.  I find that conclusion to be puzzling given the explanation for what is such a business in the regulations.

2.  The required minimum salary will be adjusted every three years, instead of every year, with the first such adjustment to occur on January 1, 2020 and then on January 1 every three years thereafter.

3.  The required minimum salary will be set using the 40th percentile of full-time salaried workers in the lowest wage Census region, which at this time is the South/Southeastern U.S.  The proposed standard was the 40th percentile of full-time salaried workers in the U.S.  Under the adopted standard, the required minimum salary is projected to rise to over $51,000 on January 1, 2020.  The USDOL will announce the new minimum salary amount 150 days before that date.

4.  The payment of non-discretionary bonuses, incentive payments, and commissions can be used to satisfy up to 10% of the required minimum salary amount, if those payments are made at least quarterly.  This is a totally new rule.  The USDOL considers individual or group production bonuses and bonuses for quality and accuracy of work to be non-discretionary.  The final rule also permits a catch up payment to be made in the pay period immediately following the end of a calendar quarter, if the salary paid to the employee during that quarter was less than 100%, but at least 90% of the required minimum amount. This will give some flexibility to employers who choose to use bonuses, incentive payments, or commissions to pay their exempt employees.

5.  The new rule takes effect on December 1, 2016, instead of 60 days after its publication, so employers have more time to decide how they will respond to the new requirements.

What options are available to employers to satisfy the new requirements will be the subject of my next post.