Overtime Rule Presents Challenges and Questions for Dealers
On May 18, the Department of Labor (DOL) announced a final rule that will dramatically increase the number of employees eligible for overtime pay. The rule increases the salary level under which full-time salaried “white collar” employees qualify for overtime pay from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The new rule takes effect on December 1.
In addition, the threshold will automatically adjust every three years and be based on the 40th percentile of average earnings for salaried workers in the lowest wage census region, which is currently the South. This means DOL will next increase the threshold levels to take effect on January 1, 2020, and post the new salary levels 150 days in advance of the effective date (August 1, 2019). The White House estimates that the threshold will increase to $51,000 in 2020.
As part of the new rule, 10% of the salary threshold for workers not classified as highly compensated employees (HCE) can be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.
Employers should continue to focus on the duties test, which was not changed. The three basic tests that a worker must meet in order to claim a white collar exemption are the following: 1) the employee must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”); 2) the salary must meet the applicable threshold amount (“salary level test”); and 3) the primary job duty must involve work associated with executive, administrative, or professional employees (“standard duties test”).
There is still a general exemption from the rule for outside sales professionals, provided the following criteria are met: 1) the employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a compensation will be paid by the client or customer; and 2) the employee must customarily and regularly be engaged away from the employer’s place or places of business. A general exemption also exists for drivers of commercial trucks involved in interstate commerce.
The HCE salary threshold for full-time salaried workers will increase from $100,000 to $134,004 as part of the rule. This number is based on the 90th percentile of full-time salaried workers nationally, and will also be adjusted every three years.
Employers should take steps over the next several months to comply with the rule by identifying exempt positions where employees earn less than the threshold and decide which positions to increase salaries above the new threshold. An important consideration for workers moving from salaried exempt to hourly non-exempt is whether their benefits will change as part of the reclassification. As has been mentioned to regulators and lawmakers, workers converted to hourly non-exempt may see changes in their benefits and will likely have limited opportunities to earn overtime.
The Obama Administration estimates that the new rule will extend overtime protections to 4.2 million more Americans who are not currently eligible under federal law, and boost wages for workers by $12 billion over the next 10 years. Employers from a variety of sectors have disputed this, arguing that it will force more employees to be converted from exempt to non-exempt without increasing annual wages. In addition, it will reduce flexibility of work arrangements and advancement opportunities.
This spring before the rule was finalized, NLBMDA met with the White House’s Office of Management Budget Office of Information of Regulatory Affairs stating its opposition to the rule. NLBMDA noted that the new rule—then a proposal—failed to consider regional differences for overtime pay, and that DOL’s analysis lacked proper attention to the impact on small business and was devoid of any empirical data linking earnings data to the realities of local economies, markets, and sectors. Previously, NLBMDA submitted written comments to DOL in September 2015 opposing the rule.
Legislation was introduced in March in both the House of Representatives and Senate that would delay the Overtime Rule. The Protecting Workplace Advancement and Opportunity Act (H.R. 4773, S. 2707) would halt the changes to overtime pay eligibility criteria and require DOL to conduct a comprehensive economic analysis on the impact of mandatory overtime expansion to small businesses, nonprofits, and public employers.
Dealers are encouraged to visit NLBMDA’s Legislative Action Center and send a letter to their Representative and Senators asking for support and passage of the legislation. NLBMDA continues to seek a legislative remedy limiting or repealing the changes to the Overtime Rule; however, dealers should take steps now to ensure compliance when the new rule takes effect on December 1.