New Overtime Rule: It Could Have Been Worse!
Ordinarily, you might expect that the business community
would get pretty upset by a proposed rule increasing the minimum salary
required for exempt employees under the Fair Labor Standards Act from $23,600
to $35,308. After all, there are quite a few front line supervisors in fast
food restaurants and smaller businesses who earn annual salaries in the low
thirty thousands, especially in communities with lower costs of living. The
proposed regulation will require employers to start paying these employees overtime
or raise their salaries to the minimum threshold.
But as we
all know, it could have been much worse. The minimum salary for exempt
employees had been expected to double to over $47,476.01 on December 1, 2016,
had a federal district judge in East Texas not interfered. The proposed
regulation will also allow employers to count non-discretionary bonuses and
commissions up to 10 percent of the minimum threshold. For example, if an
employee with a base salary of $33,000 also earns a $2,500 bonus, that employee
can still be exempt.
Not so positive is the fact that the
new regulations will also raise the total compensation requirement for exempt
“highly compensated employees” from $100,000 to $147,414. A “highly compensated
employee” is one whose primary duty includes office or non-manual work and who customarily and regularly performs at
least one of the duties of an exempt
executive, administrative or professional employee. Thus, for example, an employee earning just over
$100,000 could qualify as an exempt highly compensated executive if the
employee customarily and regularly directs the work of two or more other
employees, even though the employee did not meet all of the other requirements
in the standard test for exemption as an executive. That employee — and there
are quite a few of these employees in the fracking industry — will now have to
be paid overtime unless his salary exceeds $147,000.
My prediction is that the new
regulation is likely to withstand judicial challenge, so employers would be wise
to begin assessing how these changes might affect their business — who is being
paid how much, do they meet the new threshold, and if not, how many hours, if
any, over forty do they typically work? If an exempt employee makes just under
the new threshold, it may be cheaper to increase that employee’s salary. Employers
also need to make sure to inform their managers and board members about the
effect of these new regulations so that no one is surprised when the
regulations go into effect.