On Tuesday, November 22, 2016, a federal judge in Texas granted a preliminary injunction halting the implementation of the new overtime rule due to go into effect on December 1. In response to the Department of Labor’s (DOL) extension of the overtime eligibility rule this past May, 21 states and a number of business associations filed suit challenging that this extension bases eligibility for overtime solely on the salary level and not the type of work actually performed.
The Fair Labor Standards Act (FLSA) mandates virtually all employers to pay employees time-and-a-half if their work week exceeds 40 hours, but provides an exemption for bona fide executive, administrative, and professional workers who meet a duties and salary test. Thresholds for these rules were established in 2004, and, at the President’s 2014 request, were updated by the DOL on May 18, 2016.
The main components of the new rule, effective December 1, are:
- The overtime salary threshold that requires employers to pay time-and-a-half for any hours exceeding 40 hours in a given week will rise from $415 to $913 per week— or from $23,660 to $47,476 annually. For example, all employees earning less than $47,476 annually must be paid overtime regardless of whether their classified as hourly or salary employees.
- Total annual compensation requirement for the exemption of highly compensated employees (HCE) from overtime will rise from $100,000 to $134,000. HCE’s must receive at least the full standard salary amount each pay period on a salary or fee basis, not including bonuses and incentives.
- Non-discretionary bonuses and incentive payments—including commissions and non discretionary bonuses tied to productivity and profitability— may satisfy up to 10 percent of the standard salary level.
The states and business associations filing the lawsuit do so on the basis that adjustment of the salary test, without proper adjustment of the duties test, affirms that salary is the single best method of determining exempt status rather than the duties the employee is actually performing.
This premise ignores the actual requirements of the provision, i.e., a combination of the salary test, the salary basis, and primary duties performed.
- Employers need not comply with the new rule effective December 1, 2016 until further notice.
- Employers must still follow existing overtime rules governing minimum wage and overtime pay.
Additional information can be found at: https://www.dol.gov/whd/overtime/fact_sheets.htm