UPDATE: DOL Announces New Proposed OT Rule
On August 30, 2023, the U.S. Department of Labor (DOL) announced a proposed overtime rule that would raise the weekly salary limit under the Federal Labor Standards Act (FLSA) from $684 to $1,059, which equals a little more than $55,000 per year. The proposed changes would also increase the annual salary threshold for highly compensated workers from $107,432 to $143,988. If these changes become law, it would extend overtime protections to nearly 3.6 million salaried employees.
The Department’s 60-day comment period expired November 7, 2023. Paycor is closely monitoring the proposal and will provide updates as new information becomes available.
2019 Overtime Rule Recap
The DOL previously announced changes to the overtime rule on September 24, 2019. At that time, the rule raised the salary threshold for executive, administrative, and professional exemptions from $455 per week to the current level of $684 per week. As a result, any employee who earns less than $35,568 annually is eligible for overtime pay. The law also raised the total annual compensation level for highly compensated employees from $100,000 per year to $107,432 per year.
To help HR leaders prepare for the new year and mitigate risk heading into 2020, our compliance team answered the most frequently asked questions around the new DOL overtime rule. NOTE: These questions and answers relate to the 2019 overtime rule changes. We will update the FAQ if the 2023 proposed changes are passed into law.
Q: What determines if an employee falls within one of the exemptions?
A: To have exempt employee status, there are three exempt employee requirements that must be met: The worker must be paid on a salary basis, make the minimum salary for exempt employees, and have job duties that are considered exempt. Fact Sheet 17A
Q: What are the significant changes employers must know about the final rule?
- The salary threshold has increased to $684 per week or $35,568 a year;
- Raises the total annual compensation requirement for highly compensated employees to $107,432.
- The highly compensated employee must receive at least $684 per week on a salary basis, excluding the nondiscretionary bonuses and incentive payments;
- Employers can use nondiscretionary bonuses and incentive payments (including commissions) to satisfy at least 10% of the salary test.
- Revises special salary levels in us territories. In Puerto Rico, Virgin Islands, Guam and the Northern Mariana Islands increase t $455 per week, and in America Samoa to $380 per week.
- Increases weekly salary threshold to $1,043 per week for the motion picture industry;
Note: The job duties test did not change.
Q: Who is covered by the FLSA?
A: Any employee that does not fit into the exempt category is considered a nonexempt employee.
https://www.dol.gov/whd/regs/compliance/whdfs14.htm
Q: What if a state has established its own overtime rules?
A: In cases where an employee is subject to both the state and federal overtime laws, the employee is entitled to overtime according to the higher standard (i.e., the standard that will provide the higher overtime pay). Not all states have separate laws, but employers should consult their specific state laws to determine applicability.
Q: Can employers use bonuses to satisfy part of the salary level test?
A: Yes, one of the provisions allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary test.
Q: Does the Final Rule change how employers may use bonuses to satisfy the salary level for highly compensated employees?
A: A highly compensated employee must receive at least the new standard salary amount of $684 per week on a salary basis, without regard to the payment of nondiscretionary bonuses and incentive payments.
Q: How does the catch-up payment process work for employers?
A: If at the end of the calendar year pay period the salary paid plus the additional payments do not equal the standard salary, the employer would have one pay period to make up the shortfall.
Q: How should a company handle exempt employees that work prorated hours?
A: Exempt employees are not granted the protections of the FLSA and are therefore not entitled to overtime pay. If the employees meet the job duty classifications, and receives salary in excess of the 2020 threshold of $684/week, they are exempt. https://www.dol.gov/agencies/whd/overtimepay
Q: Does the FLSA rules include outside commissioned salesmen?
A: The FLSA classification for an outside sales representative requires that the individual primary duty be sales-related work and that such work be customarily and regularly performed away from the employer’s regular place or places of business. The agency distinguishes between outside sales, and inside sales, and this exemption does not apply to inside sales staff. https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf
Q: Are home health agencies exempt from overtime rules?
A: Most home care workers must be paid at least the federal minimum wage and overtime. The relevant question is often who is responsible for making sure these workers are paid according to these FLSA requirements. Whether you are responsible for the worker being paid federal minimum wage and overtime depends on whether you are an “employer” as defined by the FLSA.
https://www.dol.gov/whd/homecare/homecare_guide.pdf
Q: If an employee works more than 8 hours on a given day but less than 40 hours for the total workweek, is that employee entitled to overtime pay?
A: The Federal Department of Labor does not require overtime for hours worked over 8 in a day. However, there are states that have this regulation and you will want to verify the states overtime regulations.
Q: For highly compensated employees, can commission be included in the salary calculation? For example, how do we classify an individual who makes $40,000 base salary and $70,000 commissions?
A: The only change for highly compensated employees in 2020 is an increase in the required total annual compensation of $107,432 or more to meet the exemption, which includes at least $684 per week paid on a salary or fee basis. The weekly salary amount of $684 must be paid in its entirety. Employers may not use nondiscretionary bonuses and incentive payments (including commissions) to satisfy any portion of the weekly standard salary level for HCEs. Employers should consult DOL guidance in Fact Sheet 17H for details regarding total annual compensation: https://www.dol.gov/whd/overtime/fs17hhighlycomp.pdf
This information is not intended as legal advice. You should seek specific legal advice before acting with regard to the subjects mentioned herein. Any calculations contained herein are for example purposes only.
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