On May 18, the Department of Labor (DOL) released its final so-called “white collar” overtime rule, which will take effect December 1, 2016. As a result of the final rule, the Obama administration estimates 4.2 million salaried employees who presently qualify for the “white collar” exemption (Executive, Administrative, Professional, Outside Sales and Computer Employees) from the Fair Labor Standards Act (FLSA) will soon be eligible for overtime protection or, in the alternative, more time off should employers elect to limit their hours to restrict overtime pay.
Key provisions of the final rule include:
- Salary Threshold – The salary threshold for an employee to qualify for the white collar exemption will increase from $455 per week to $913 per week ($47,476 for a full-year worker). This increase is designed to equal the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South. DOL calculates that 35 percent of full-time salaried workers will be automatically entitled to overtime, based solely on their salary. In its comments, LeadingAge asked the DOL to limit the increase in the salary threshold to $35,000 in 2016 dollars and couple that increase with an extended enforcement deadline to afford employers sufficient time to train any formerly exempt employees regarding proper work practices for non-exempt employees.
- Automatic Updates to Salary Threshold – The final rule provides for automatic increases to the salary threshold every three (3) years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, estimated to be $51,168 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019. LeadingAge, in its comments to the proposed rule, argued against such automatic updates on the basis that automatic updates remove the issue of the proper balance between employer and employee interests from public discourse and bypass the DOL’s accountability to the public on such issues.
- Duties Test – The final rule does not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay. For workers whose salary exceeds the salary threshold, employers will continue to use the same duties test to determine whether or not the worker is entitled to overtime pay. LeadingAge is pleased that the DOL elected not to make any changes to the duties test, which could have further eroded the white collar exemption.
- Highly Compensated Employees (HCE) – The final rule also updates the total annual compensation level above which most white collar workers will be ineligible for overtime. The final rule raises this level to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 to $134,004 per year. Like the general salary threshold, the HCE salary threshold will increase every three (3) years to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
- Bonuses, Incentive Payments and Commissions – The final rule will allow up to 10 percent of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.
There is no doubt the final rule will have a profound effect on LeadingAge members. LeadingAge, in its comments, agreed with DOL that the salary threshold is outdated and should be updated, particularly as adequate compensation is critical for our members’ workforce—a workforce that is called to serve the frailest among us.
Yet without corresponding increases in Federal and State funding for the services LeadingAge members provide, many will be hard pressed either to raise salaries to meet the new thresholds or absorb the additional overtime costs, which is why LeadingAge advocated for a more modest increase in the salary threshold.
The sudden, marked increase occasioned by the final rule likely will force many members either to place strict limits on their employees’ ability to earn overtime pay or adjust down their base rate with the expectation that they will work a certain amount of overtime to net the same salary they were making previously. Neither of these options produces a net benefit to the employee in terms of increased wages, and the latter option could result in a net decrease in pay if the employee does not work the anticipated overtime hours.
Further, the burden of compensating for limited hours would fall squarely on employees who remain qualified for the white collar exemption, thereby frustrating one of the stated purposes of the rule to prevent overwork. It would also inhibit lower level salaried employees from gaining valuable experience that would allow them to move more quickly up to positions requiring a higher degree of expertise.
For more information, LeadingAge DC is participating in a webinar hosted by LeadingAge Florida on June 16 at 2pm. Click here for more information
May 25, 2016