YELLOW ALERT: Department of Labor Announces Final Overtime Rule;
EEOC Releases Rule on Wellness Programs
Crunching the Numbers
Under current regulations, to qualify for the “white collar” exemption, employees must meet job-duties-related tests and be paid at least $455 per week—or $23,660 per year. DOL’s final rule increases that salary threshold, which was last updated in 2004, putting it in the 40th percentile of full-time salaried workers in the lowest income Census region (currently, the American South). The $47,476 per year ($913 per week), is slightly lower than the number initially proposed by the Department ($50,440 per year, $970 per week), which was the 40th percentile of weekly earnings for full-time, salaried workers nationwide. According the DOL, the final rule will allow up to 10 percent of the salary threshold to be met with nondiscretionary bonuses, incentive payments, or commissions that are paid quarterly or more frequently.
DOL is also instituting an “automatic update” for the salary threshold. Beginning in 2020, the salary level will be increased automatically every three years. Every update will automatically increase the threshold to the 40th percentile of full-time salaried workers in the region in which the salary level is lowest—historically, the South. All new salary levels will be posted in the Federal Register 150 days before their effective date, beginning in August 2019. The first automatic update is expected on January 1, 2020—and it is estimated that the salary threshold would be raised to $51,000.
Importantly, the final rule did not change the current job-duties-related tests. For salaried workers earning more than the threshold, the duties test determines whether or not they can still be eligible for overtime compensation.
The new salary threshold set in the final rule will go into effect on December 1, 2016.
How We Got Here
The proposed rule is the end result of a memorandum issued by President Obama in March 2014 that directed the agency to “modernize and streamline” federal overtime regulations, with particular emphasis on the exemptions from the FLSA’s minimum wage and overtime wage requirements.
Beginning in 1938, the Fair Labor Standards Act put in place the nation’s first overtime protections, which set forth the standard that most Americans are familiar with: that workers be compensated time-and-a-half for any hours worked over 40 hours in a week. Generally, all hourly employees are guaranteed overtime. Salaried employees, in contrast, receive the same guarantee unless the employee: (1) is paid an amount higher than the salary threshold set by the DOL, and (2) passes a “duties test” demonstrating that the employee’s duties primarily involve executive, administrative, or professional tasks. Doctors, lawyers and teachers, along with a select number of other occupations, are not eligible for overtime pay or are governed by special provisions.
These revised overtime regulations will have a significant impact on businesses of all shapes and sizes, including insurance brokerage firms and most if not all of their clients. For example, although the Department does allow a portion of earned commissions to be applied to the overtime eligibility salary threshold, an individual’s base salary before commission must still be at least 90 percent of the threshold. Although “outside sales” personnel generally may be exempted from this entire regime (so no overtime need be paid), the Department’s separate independent contractor “clarifications” this year may effectively bar many commissioned sales personnel—including most insurance producers—from being treated as such. This may dictate that producers generally will have to be paid a minimum base salary of almost $43,000.
Our legal team at Steptoe & Johnson is continuing to review the final rule and will provide updates in the coming weeks.
In Other News: EEOC Releases Final Rules on Wellness Programs
Separately, the Equal Employment Opportunity Commission (EEOC) has released long-awaited final rules and related Interpretive Guidance on employer wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act of 2008 (GINA).
The Council and others urged the EEOC to harmonize its final wellness program regulations with existing Affordable Care Act (ACA) rules. The EEOC, however, largely retained the structure and content of its proposed ADA and GINA rules, enshrining notable discrepancies between EEOC and ACA approaches to these valuable employer programs. The rules’ applicability date is January 1, 2017.