DOL Finalizes New Overtime Rules

By: Lawrence P. Postol, Vice President For Legislative Affairs

Lpostol@seyfarth.com

DOL Overtime Rules: Effective 12/1/16, If You Do Not Pay An

Employee At Least $913 A Week (Excluding Lawyers, Doctors,
Outside Salespersons, and Teachers) You Need To Track Their
Work Hours And Pay For Overtime After 40 Hours A Week
The Department of Labors long-awaited revisions to the Fair Labor Standards Acts
white collar exemption were published on May 18, 2016. The key changes are as follows:
The new salary level required for the executive, administrative, and professional
exemptions will be $913 per week, which translates to $47,476 per year.
Up to 10% of the salary level can be met with bonuses and commissions. For employers
to credit nondiscretionary bonuses and incentive payments toward a portion of the standard
salary level test, however, such payments must be paid on a quarterly or more frequent basis.
Thus, an employer may pay an exempt employee working under an incentive plan 90% of the
salary level. At the conclusion of the quarter, if the employee has not received bonuses or
commissions equaling or exceeding 10% of the salary level for 13 weeks, an employer may
make a catch-up payment within one pay period after the end of the quarter.
The new salary level required to take advantage of the highly-compensated employee
provision of the exemptions will be $134,004 per year. Of that, $913 per week must be paid on a
salary basis.

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 The new levels will be effective on December 1, 2016. December 1 is a Thursday,

which means that salary increases to ensure continued use of the exemption for weekly/biweekly
employees must be made for the workweek (or pay period) that includes December 1.
The salary levels will be increased automatically every three years, starting on January
1, 2020. For the standard level, the amount will be based on the 40th percentile of full-time nonhourly workers in the region in which the salary level is lowest (historically, the South). For the
highly compensated employee provision, the amount will be based on the 90th percentile of fulltime non-hourly workers nationally. The Department will publish the information in the Federal
Register in advance of the increase. It is expected that the salary will be $51,000 per year on
January 1, 2020.
The salary level represents a slight reduction from the expected level of $50,440 per year,
which was identified by the Department in its proposed rule last year. In addition, although an
automatic increase was proposed and expected, doing so every three yearsinstead of annually
provides a small relief for the compensation planning process.
Over the past year, there has been a great deal of discussion about what the Final Rule
might contain. Given those discussions, it is notable that the final rule does not:
change the primary duty test;
revise the tests for the duties required of executive, administrative, or professional
employees;
amend the salary basis test;
apply any new compensation standards to doctors, lawyers, teachers, or outside sales
employees; or

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 make any changes to the computer professional exemption (other than the salary
increase, as may be applicable).

Strategies For Employers

Contrary to what many business groups have suggested, this is hardly the end of the
world as we know it. Rather, employers will simply need to adjust hourly pay rates so the total
weekly compensation is what they want to pay, and the employers will have to require that
employees accurately track their hours work, and then pay for overtime hours.
It should initially be noted that in some ways the Department of Labor has done
employers a favor. Many employees who were paid a salary under $47,476, in fact did not meet
the duties test for any of the white collar exemptions. If you are paying an accountant $25,000,
it is highly unlikely he/she performed duties and had the ability to exercise independent
judgment and discretion to meet either the professional or administrative exemptions. Thus,
many employers were subject to being sued for FLSA violations, and indeed, that has been the
number one class action lawsuit for many years. Even if the employer wake up to the fact the
employer was violating the law even before being sued, it was always difficult to make the
change to non-exempt status for employers who were exempt, without tipping off the employees
to past violations and thus exposure for damages going back 3 years.
Now, the Department of Labor has made the conversion to non-exempt status for you for
your employees earning less than $47,476, and no questions as to past salary status is likely to be
asked.

Now it is true that some employers say that you cannot afford the extra expense of

paying for overtime. However, there does not need to be an extra expense. The employer just
needs to adjust the employers hourly rate so that the total compensation is what the employer
wants to pay. For example, assume you have an accountant who was making $35,000 a year, and
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the accountant usually worked 50 hours a week. The employer can set the accountants hourly
rate to whatever the employer wants, provided it is at least minimum wage, $7.25 an hour
(except for cities and states which are above the federal minimum wage, then the employer must
meet those minimum wage rates). So if the employer set the accountants pay at $7.25 per hour,
and he works 50 hours a week, he would receive 40 x $7.25, plus 10 x 1.5 x $7.25, which equals
$398.75 a week, which is $28,600 a year. Yes, when converting the employee from exempt to
non-exempt, the employer can pay them less what the employee was making on a salaried basis.
It is worth repeating, the employer can set the workers hourly rate at whatever the employer
wants, as long as it is at least at or above minimum wage.
Now the employer may not want to reduce the accountants pay for moral reasons, or
because of fear the accountant he will be hired away. That is not a problem. The math is simple,
the formula to figure out the new hourly rate to keep the overall pay the same, again assuming
50 hours of work a week, is as follows, Y being the new hourly wage in our example : $35,000 =
52 x (40 x Y, plus 10 x 1.5 x Y). So $35,000 = 52 x 55 x Y. So, $35,000 divided by 2860
equals Y, the new hourly rate, which is $12.24 per hour.
Employers must remember, of course, two basic but critical rules for non-exempt
employees: (1) the employer must accurately record the workers work hours, and (2) the
employer must make sure employees are not working overtime, and not recording the work
hours. Sounds simple, but it does take some effort and diligence to enforce. A mere memo
directing this is not enough. Employers must do sample checks to make sure the rules are being
followed.
Employees will come to the office or shop, work, and work a few minutes before signing
in at their start time. They will take work home and work on it. They will sign out for the day at

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the end of their shift, but then work on a project for half an hour. They will answer work emails
outside of work hours. If the non-exempt employee does not record these hours, then the work
hours are not accurate, and there is potential liability for the employer. It is not enough to tell
employees not to work overtime, if the supervisor knew or should have known, the employee is
in fact working overtime. Employers must have more than just a sign in and sign out sheet.
They need to walk the floor and check emails to make sure unauthorized overtime is not being
worked. Employers need to remind non-exempt workers again and again, that they will be
disciplined, up to termination of employment, if they perform any work of any kind, and do not
record their work hours.

2016 by Lawrence Postol

Mr. Postol is the Vice President for Legislative Affairs on the NOVA SHRM
Board, and a partner in the Washington, D.C. office of Seyfarth Shaw LLP. Mr.
Postols acknowledges that partners deserve the credit for writing most of this
article, for which he thanks them. If you have any questions about the information
in this article, you may e-mail Mr. Postol at Lpostol@seyfarth.com or call him at
202-828-5385.
Disclaimer: This newsletter does not provide legal or other professional
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and the newsletter publisher. The newsletter should not be used as a substitute for
competent legal advice from a licensed professional attorney in your state.

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