Last week I wrote about the new federal overtime rules that will go into effect December 1, 2015. I attended a webinar hosted by the Department of Labor regarding the changes. There were a couple of points about bonuses that I thought worth mentioning. I also wanted to circulate the questions and answers the DOL provided regarding the new federal overtime rules.
The new regulations allow employers to use non-discretionary bonuses and commissions to satisfy part of the new salary requirement. Employers can satisfy up to 10% of the salary requirement with quarterly bonuses. Employers cannot use discretionary bonuses (e.g., holiday bonus, or “attaboy” bonus) to satisfy any portion of the salary requirement.
So, an employer could pay a salary of $822.00 per week ($42,744 per year), and make up the difference ($91.00 per week) through a quarterly non-discretionary bonus or commission. If the employee does not earn enough in bonuses to make up the difference, the employer can make a one-time payment each quarter sufficient to make up the difference.
The following are the questions and answers the Department of Labor provided after the webinar.
May 26, 2016 Webinar FAQs New Federal Overtime Rules
Q. We are a seasonal property open 8 months – is the $47,476 based on that or 12 months?
A. The new salary is $913 per week. During the eight-month period that employees work at your property, you will need to guarantee that at least $913 per week is paid for an exempt employee. Please see FOH 22g10 concerning rules for annual salary earned in a shorter period, which can be found at the following link: https://www.dol.gov/whd/FOH/FOH_Ch22.pdf.
Q. I want to get clarification on HCE. With the new range being $134,000.00. Does that mean that anyone we have earning between $100,000 but less than $134,000 that they have to be brought up to $134,000? Or does that mean that anyone earning over $100,000 but under $134,000 is no longer considered a HCE. I am just not clear on if they need to be bumped up or can be left alone.
A. If your employee earns at least $913 per week and passes the standard duties test, they will not be affected by the increase in the HCE total annual compensation threshold. If they only pass the relaxed HCE duties test, you would need to raise their compensation to the new threshold ($134,004 per year) to retain their exempt status. Alternatively, you could reclassify the employee as non-exempt, which means that they would be entitled to receive overtime pay for all work hours beyond 40 in a workweek.
Q. With regard to the non-discretionary bonus and catch up payment provisions, does “quarterly” mean calendar quarter? Fiscal quarter? Or is it up to the employer’s discretion?
A. No, it does not mean the calendar quarter. It is the employer’s discretion when the quarter will begin.
Q. How does this ruling affect agricultural workers?
A. The Department’s rulemaking addressed the regulations governing the “white collar” exemptions under Section 13(a)(1) of the FLSA – exemptions for executive, administrative, and professional employees, as well as outside sales employees and employees with certain computer-related job duties. Thus, unless an agricultural worker currently qualifies for one of these “white collar” exemptions, they will not be directly affected by the Department’s Final Rule. The FLSA’s exemptions governing agricultural workers have not been changed by this Final Rule.
Q. Is the Computer Professional minimum salary/minimum hourly wage requirement increasing as part of the Final Rule?
A. The hourly salary for the Computer Professional Exemption is still $27.63. However, the weekly standard salary amount has increased to at least $913 per week.
Q. Can an employer say that an Xmas bonus is part of your salary in effort to meet the new standard?
A. When the Final Rule takes effect on December 1, 2016, employers will newly be allowed to satisfy up to 10 percent of the standard salary level with nondiscretionary bonuses and incentive payments (including commissions). Nondiscretionary bonuses and incentive payments are forms of compensation promised to employees, for example, to induce them to work more efficiently or to remain with the company. By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and not in accordance with any preannounced standards.
An unannounced holiday bonus would qualify as a discretionary bonus, because the bonus is entirely at the discretion of the employer, and therefore could not satisfy any portion of the $913 standard salary level.
Q. Multiple Incumbent Positions: If I have a job, which meets an exemption test, am I able to reclassify only those who are below the new minimum to non-exempt and allow those that are over to remain exempt? Or, does the entire classification need to be exempt or non-exempt?
A: The “white collar” exemptions require an employee to be paid on a salary basis, paid above a certain salary level, and meet the respective duties test. If an employee meets the duties test of an executive, administrative, or professional employee, and meets the salary basis requirement, and meets or exceeds the salary level requirement, they would meet the requirements for the exemption. If they fail to meet any part of the criteria, they would not meet the exemption and would therefore be non-exempt. The exemption is applied on an employee by employee basis, not to a particular classification.
Keep in mind the salary level and salary basis requirements do not apply to outside sales employees, licensed or certified doctors, lawyers and teachers. Employees in these occupations who meet the duties test are exempt regardless of their salary.
Q. What is the salary requirement for part time salary workers?
A. Whether a worker is full-time or part-time, the standard salary level to qualify for exemption will be $913 per week.
Q. Has there been any change to the exemption for commissioned employees working at a retail establishment? Our understanding is that these employees are exempt so long as at least 50% of their gross earnings are from commissions. Has that changed?
A. No, Section 7(i) of the FLSA remains unchanged by the issuance of the new Overtime Final Rule related to commissioned employees. See Fact Sheet #20: Employees Paid Commissions By Retail Establishments Who Are Exempt Under 7(i) from Overtime Under the FLSA.
Q. OT rules for non-profit organizations: A client has asked “Can overtime compensation can be paid with time off (comp-time) calculated at time and a half?”
A. No. Only employers that are public agencies under the FLSA (e.g. a state government) can provide comp time in lieu of overtime premium payments.
Q. We currently pay employees every 2 weeks. Will our pay periods need to switch to every week?
A. No. Employers may still pay their employees on a biweekly basis. An employer’s overtime pay obligation is determined on a week-by-week basis, but they may pay their employees on a biweekly basis.
Q. Straight Commission Employees: How do we handle outside sales staff who are paid straight commissions?
A. Consistent with the current regulations, neither the old or new salary requirements will apply to the outside sales employee exemption. For additional information, please See Fact Sheet #17F: Exemption for Outside Sales Employees Under the Fair Labor Standards Act (FLSA).
Q. How will this new rule affect California? California has always been consistent or more favorable to the employee than FLSA. This new rules suggests FLSA is now more favorable to the employee. Or am I missing something? Thanks
A. The Fair Labor Standards (FLSA) provides minimum wage and hour standards, and does not prevent a State from establishing more protective standards. If a State establishes a more protective standard than the provisions of the FLSA, the higher standard applies in that State. To the extent the new minimum salary amount of $913 per week under the Overtime final rule is higher than the State requirement, the employer in that State must comply with the higher standard and pay not less than $913 per week for an exempt white collar employee.
Q. Are employers in compliance if they follow the annualized amounts? (Or do they have to make sure they are always in compliance each week?)
A. An employee’s exempt status – and, if nonexempt, the employee’s right to overtime pay – is determined on a weekly basis. Generally, to retain exempt status, an employee must satisfy the duties test and earn at least $913 per week.
Q. Quarterly bonus: if an employee is paid between $822 and $913 per week, can the bonus be paid less frequently than quarterly?
A. No. To count toward the standard salary level, nondiscretionary bonuses must be paid quarterly or more frequently.
Q. We employ individuals who teach ESL classes, we identify them as teachers, we are not an educational institution or school. Their primary duty is teaching. Do they qualify as exempt?
A. No. To qualify for the professional exemption as a teacher, the employee must be employed in an “educational establishment,” as that term is defined at 29 CFR 541.204(b).
Q. Comp Time: Are comp time programs still allowed? Meaning that any hours over 40 hours can be banked to use later to either take time off or maybe get paid at end of year at straight time?
A. Only employers that are public agencies under the FLSA (e.g. a state government) can provide comp time in lieu of overtime premium payments.
Q. Did I understand you correctly to say that teachers do not have to earn the minimum exempt salary? In other words: there is no problem if the salary for teachers in a given geographic area is below the $913/week even if they’re considered exempt employees.
A. Yes. Certain professional employees – including doctors, lawyers, and teachers – are not subject to the salary basis and salary level requirements that generally apply to other white- collar employees. To qualify for the professional exemption as a teacher, the employee must be employed in an “educational establishment” and have a primary duty of teaching.
Q. Non-Enforcement for Medicaid-funded services for individuals with intellectual and developmental disabilities in residential homes and facilities with 15 or fewer beds: Does the limited non-enforcement for Medicaid-funded services for individuals with intellectual and developmental disabilities in residential homes and facilities with 15 or fewer beds apply to companies that have multiple facilities all of which have fewer than 15 beds? Thank you.
A. The limited Non-Enforcement Policy for Medicaid-funded services for individuals with intellectual and developmental disabilities in residential homes and facilities with 15 or fewer beds – applies per establishment – not enterprise wide.
Q. In a public accounting firm, will the accountants who earn less than $47,476 be eligible for overtime? For example, a new college graduate passes the CPA exam and is a professional but the earnings are less than $47,476.
A. Once the Overtime final rule becomes effective December 1, 2016, white collar employees, such as CPAs, who are paid less than the minimum salary amount of $913 per week will not meet the professional employee exemption from overtime pay. Thus, such employees must be paid overtime for hours worked over 40 in a workweek.
Q. Do you plan to provide written guidance with further details regarding the application of the 10% “credit”?
A. Yes, we plan to issue additional guidance before the Final Rule becomes effective on December 1, 2016.
Q. Just wanted to verify that any person employed as an outside sales person does not need to have their salary increased?
A. Correct. Outside sales employees are not subject to the salary basis or salary level requirements, so they are not affected by this Final Rule.
Q. Please clarify what a highly compensated employee must be paid weekly and annually and how nondiscretionary bonuses and commissions factor in. Thanks!
A. When the Final Rule takes effect on Dec. 1, 2016, employees who only satisfy the HCE duties test may qualify for exemption if they earn at least $134,004 per year and at least $913 per week. HCE employees must receive 100% of the $913 weekly threshold on a salary or fee basis, but non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy the remainder of the $134,004 total annual compensation requirement.
Q. Can we classify someone as Salary Non-Exempt and pay them less than the required amount but pay them overtime?
A. Yes, an employer is permitted to pay a non-exempt employee on salary basis which is less than the required $913 per week (New Overtime Final Rule) as long as the employee is not paid less than the federal minimum wage rate of for all hours worked and is paid overtime for all hour worked in excess 40 per week. For additional information, please review Fact Sheet 23: Overtime Pay Requirements of the FLSA.
Q. What is the definition of a highly compensated employee?
A. The Overtime final rule (effective Dec. 1, 2016) sets the highly compensated employee total annual compensation level to the 90th percentile of earnings of full-time salaried workers nationally ($134,000) annually). To be exempt as a highly compensated employee, an employee must also receive at least the new standard salary amount of $913 per week on a salary or fee basis and pass a minimal duties test (i.e., the employee customarily and regularly performs any one of more of the exempt duties or responsibilities of an executive, administrative or professional employee under the regulations).
Q. If there is an employee that is currently making $120,000, does the employer have to increase his salary to the required annual salary for the highly compensated employee?
A. To continue to claim the exemption under the highly compensated employee test, the employer would have to increase the compensation to at least the new total annual compensation amount. To the extent the employee meets the standard duties test under the executive, administrative, or professional exemption (EAP exemption), the employer can claim the standard EAP exemption for the employee if he or she earns not less than the new minimum standard salary amount of $913 per week.
Q. If the employee is being paid hourly but all the duties are applicable should he be paid salary instead? If this employee wants to stay being paid hourly should it be documented and signed by the employee?
A. Employees paid on an hourly basis are generally entitled to overtime pay, even if they satisfy the duties requirements for exemption. Employers are not required to pay employees who satisfy the duties test on a salary basis unless the employer intends to assert the exemption and not pay overtime.
Q. I know it is not changing but can you provide a simple definition as to what the duties test is? Is the duties test what defines whether an employee is exempt under executive/admin/professional?
A. WHD Fact Sheet #17A provides a concise overview of the applicable duties tests for all of the Section 13(a)(1) exemptions. That fact sheet is available at: https://www.dol.gov/whd/overtime/fs17a_overview.pdf.
Q. Does this affect teacher pay as well? Or do they fall under a separate law?
A. The following guidance addresses your question:
Q. School Personnel: We are a school district. We have a cafeteria supervisor who we have in the past considered salary. The position is 204 days per year. Would this position meet the exemption if it is paid more than an entry level teacher? If not, would the salary amount exemption be for the weeks worked or does it have to be for 52 weeks?
A. A cafeteria supervisor must be paid the standard salary level and meet the duties test delineated in 541.100 in order to be classified as exempt. The new salary level of $913 per week will be effective 12/1/16 and will apply to most employees. Please see FOH 22g10 concerning rules for annual salary earned in a shorter period, which can be found at the following link: https://www.dol.gov/whd/FOH/FOH_Ch22.pdf.
There is a limited exception for academic administrative employees who are paid at least either the new salary level or a weekly salary equal to the entrance salary level for teachers in the same educational establishment. Exempt academic administrative employees must have the primary duty of performing administrative functions directly related to academic instruction or training. Employees, such as a cafeteria supervisor, who work in education but whose work does not relate to the educational field are not performing academic administrative work, and must be paid the standard salary level of $913 per week and meet the required duties test to be exempt.
Q. Does a “secretary” who makes $48,000 fit into an exempt category?
A. Workers who do not pass the standard duties test, including most secretarial staff, do not qualify for exemption and will be entitled to overtime pay. There is a relaxed duties test for “highly compensated employees” earning over $134,004 per year, but even under that HCE test the employee must still perform exempt duties on a customary and regular basis.
Q. Can an employee make for example $60,000 annually and still be a non-exempt employee? Or once an employee reaches the new salary level of $47,476 they are automatically a salaried exempt employee?
A. To qualify for exemption, employees generally must pass tests regarding their earnings and job duties. So, yes, an employee who does not satisfy the applicable duties requirements will not qualify for exemption regardless of how much they earn.
Q. Any changes in the salary requirements for non-exempt workers?
A. Under the Fair Labor Standards Act, employees who are not exempt from its wage provisions must be paid not less than the federal minimum and overtime pay at not less than time and one half of the employee’s regular rate of pay for hours worked over 40 in a workweek. For example, non-exempt employees may be paid on an hourly or salary basis.
Q. Is there an exception that for inside sales employees that mirrors the outside sales exemption?
A. For information about the outside sales exemption under the FLSA, please see Fact Sheet17f: https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf. For information on inside sales employees, please see: https://www.dol.gov/whd/regs/compliance/whdfs20.pdf.
Q. How does the Final Rule affect Higher Education employees who are not instructors, but are entry level positions?
A. Many entry level positions may be currently overtime eligible and will not be affected by the Final Rule. Under the New Rule, currently exempt employees must be paid a salary of at least $913 per week to retain their exemption. However, the salary level does not apply to bona fide Teachers, and Academic Administrative Employees may be subject to an alternative salary level. For additional information, please review our Higher Education Guidance Document: www.dol.gov/whd/overtime/final2016/highered-guidance.pdf.
Q. If our management team meets the test for the executive duties, does this exempt them from the overtime pay if they make under the newly required $913/per week rate?
A. An exempt executive, administrative, and professional employee must meet the duties test in addition to being paid on a salary basis and at the required salary level. Therefore, if an employee only meets the duties test and not the required salary level, they would not meet the criteria necessary to be considered exempt, and would be entitled to overtime in any week they work more than 40 hours.
Q. Is it permissible for newly non-exempt employees to be classified as salary non-exempt? All other non-exempt employees are hourly; salary non-exempt would be a new classification for us. It would be far less insulting for my accountants and those in similar positions be paid this way (even if we have to count hours) than to have to punch a clock.
A. Yes. Salaried status and exempt status are separate concepts, so employees entitled to overtime pay may still be paid on a salary basis (as long as they receive overtime pay for their work hours beyond 40 in a workweek). See Fact Sheet 23 for guidance on how to comply with the overtime requirement for salaried nonexempt employees: https://www.dol.gov/whd/regs/compliance/whdfs23.pdf.
Q. I have an employee that works 50 hours a week on exempt status. He will be moved back to hourly, and will get a pay reduction. This will help us to maintain his current weekly wage. Is this something that we can do and be in compliance with FLSA.
A. Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
- use some combination of these responses.
The circumstances of each affected employee will likely impact how employers respond to this Final Rule.
Q. Where can I find more information regarding making catch-up payments for non- discretionary bonuses?
A. 29 CFR Part 541.602(a)(3) as well as 81 Federal Register 32427 provides more information regarding the catch-up payments for non-discretionary bonuses.
Q. Are blue collar workers (i.e. mechanics) able to be classified as salaried exempt or must they be hourly?
A. Blue collar workers like mechanics will not qualify for exempt status because they do not pass the duties requirements for exemption, so they are entitled to overtime pay unless another exemption applies. However, nonexempt employees do not have to be paid on an hourly basis.
Q. Can you please confirm that if an employee is paid $134,004 as of 12/1/2016 they should be classified as Exempt regardless of the duties test?
A. That is incorrect. Employees who earn at least $134,004 per year (and at least $913 per week) must still satisfy the HCE duties test to qualify for exemption. Although the HCE duties test is less rigorous than the standard duties test, the employee must still perform exempt duties on a customary and regular basis. See Fact Sheet #17H for a description of the HCE duties test: https://www.dol.gov/whd/overtime/fs17h_highly_comp.pdf.
Q. I was trying to take notes and didn’t get all the details on the administrative duties exemption.
A. See WHD Fact Sheet # 17C for an overview of the administrative employee exemption: https://www.dol.gov/whd/overtime/fs17c_administrative.pdf
Q. You said nothing is changed in terms of paying employees on a Fee Basis. Do employees paid on a Fee Basis have to meet the criteria of one of the exemptions: executive, administrative, or executive? And, when the final rule is in place, will the fee basis pay have to equal $913 per week, rather than the current $455 per week threshold? Thank you.
A. For an employer to claim an exemption under the white collar exemption regulations (effective Dec. 1, 2016), the employee must meet the duties test under the executive, administrative, or professional exemption, and be paid not less than the minimum salary amount of $913 per week. Employees who meet the duties test under the administrative or professional exemption may also be paid on a fee basis of not less than $913 per week when the final rule becomes effective.
Q. If someone is paid a salary to work Monday through Friday and only works 4 days instead of 5, is the new rule stating we have to still pay the full salary for the week?
A. Yes, employees who perform any work in a workweek must satisfy the full standard salary level test to retain their exempt status. This is not a change from the current regulations. For information on permissible deductions, see 29 CFR 541.602.
Q. We have salaried professionals whom are not scheduled at any time to work more than 40 hours per week. Do we have to track hours each week to verify that or if the schedule doesn’t allow for more hours can we document their schedules and not have them do a time card? We have several of the Officers that are very upset in having to go back to turning in time cards each week.
A. If the salaried professionals are bona fide exempt employees as defined in 29 CFR Part 541.300, there is not a recordkeeping requirement. However, if the salaried professionals do not meet all the requirements for the exemption, including the salary level, there are recordkeeping requirements that can be found in 29 CFR Part 516, which would be applicable to them.
Furthermore, overtime-eligible workers are not required to punch a time clock. Employers have options for accounting for workers’ hours – some of which are very low cost and burden. There is no particular form or order of records required and employers may choose how to record hours worked for overtime-eligible employees. For example, where an employee works a fixed schedule that rarely varies, the employer may simply keep a record of the schedule and then indicate the changes to the schedule that the worker actually worked when the worker’s hours vary from the schedule (“exceptions reporting”). See Fact Sheet 21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA).
For employees with a flexible schedule, an employer does not need to require an employee to sign in each time she starts and stops work. The employer must keep an accurate record of the number of daily hours worked by the employee, not the specific start and end times. So an employer could allow an employee to just provide the total number of hours she worked each day, including the number of overtime hours, by the end of each pay period. The Department has material available to help employers figure out what method of recording hours works best for their workforce.
Q. As a local government, we have identified the employees that are currently classified as exempt, but are compensated below the new salary threshold of $47,476. Do we have the option of allowing these employees to accrue compensatory time at the rate of time and one- half in lieu of raising their salaries to the new threshold?
If so, we currently have employees within the same job title that are compensated both above and below the salary threshold. Is it permissible to offer compensatory time (at time and one- half) only to those in the same job title that are compensated below the salary threshold without offering the same comp time to those compensated above?
A. State and local government employers may provide comp time in lieu of overtime pay, provided that there is a prior agreement. See https://www.dol.gov/sites/default/files/overtime-government.pdf. Since job titles do not determine exempt status, employers may treat exempt and nonexempt staff differently even though they may have the same job title.
Q. Final salary number for exempt: How was the decision made to come up with the 47 plus verses the 50 plus number?
A. The Department received a large number of comments expressing concern that the proposal didn’t take into account low-wage regions, low-wage industries, and small businesses. In response to these concerns, the Department set the level at the 40th percentile of full-time salaried workers in the lowest wage Census region instead of the 40th percentile nationally, as proposed in the Notice of Proposed Rulemaking. This resulted in the new salary level of $913/week ($47,476 annually).
Q. Learned professional exemption follow-up: During the webinar, it was mentioned that a job requiring a degree in any subject area would not fall under the learned professional exemption. Would this be different if required qualifications included a degree in one of several different qualifying areas?
A. For information on the Learned Professional Exemption, please see Fact Sheet 17d which can be found here: https://www.dol.gov/whd/overtime/fs17d_professional.pdf.
The above Questions and Answers were provided by the Department of Labor after the May 26th webinar. Different rules can apply in different states. Check with an attorney familiar with wage and hour laws if you have questions.
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