Overtime Exempt Rules

FLSA Overtime Rules on Hold Pending Federal Court Decision

A federal court in Texas has blocked implementation of the Fair Labor Standards Act overtime rule changes. The court issued a temporary injunction and is considering whether the overtime rules should be permanently blocked. The overtime rules will be on hold until a final decision from the federal courts is made. Look for updates here as soon as a decision is made.



On May 18, 2016, the U.S. Department of Labor, Wage/Hour Division released a revised regulation and information updating the salary thresholds for overtime exempt classifications. Click here.

For PIA's HR Flash Report and detailed analysis, click here.

Sample employee communications can be found in the associated files section below.

For the 2004 overtime exempt rules, which many aspects still apply, click here.

2016 Overtime Exempt Threshold Rule FAQ (June 2016)

Question 1: If the business gross income does not meet $500,000, and I have a salaried full-time manager that has a weekly gross of $475, does the manager qualify for overtime pay?

Answer 1: This exempt salary rule only applies to meeting the salary threshold. DOL clarified that this rule applies to firms with $500,000 in sales income. So, if you have, for example, a supervisor who manages 2 or more people and they have the authority to hire, fire, etc., then technically, the salary threshold does not need to be met to make them exempt from overtime under this rule. To put it another way, a company that has sales under $500,000 and has a supervisor does NOT need to be paid $47,476/year ($913/week) in order to be exempt from overtime. No overtime needed for this supervisor. However, don’t let this provision stop your company from growing!

Question 2: We're a midsized shop with a dozen or so employees, none of whom, including the owners, are currently at the $47,476 threshold. I hate to over simplify, but what do you recommend?

Answer 2: On the business owner question, DOL recently answered that with one of their webinars. Here is DOL’s answer:

“Business owners—defined in 29 CFR 541.101 as "any employee who owns at least a bona fide 20 percent equity interest in the enterprise in which the employee is employed, regardless of whether the business is a corporate or other type of organization, and who is actively engaged in its management"—are not subject to the salary level requirement. These bona fide business owners would not be affected by the Final Rule's increase to the standard salary level”. Source: https://www.dol.gov/whd/overtime/final2016/

As for everyone else, look at your current exempt positions now, how close their compensation is to the new threshold that is taking effect on 12/1/2016, determine how many hours they are working over 40 in a week generally (note, California has different overtime requirements), and decide if you’re going to bump them up in salary, salary plus bonus, or make them non-exempt and subject to overtime.

Question 3: So, bottom line, if you have an employee who is currently salary and exempt under the $47,476/year, you could just change them to hourly, pay an hourly rate and then the salary test doesn't apply?

Answer 3: Yes, you could convert them to hourly and just pay overtime if you want. Depending on how far the current salary is from $47,476/year and the expected overtime that will be worked in an average week, this might be your decision. Or, you could bump up to $47,476 (with or without that 10% incentive payment that must be made at least quarterly).

Question 4: Does it have to be a 10% bonus to qualify to get the salary up to new threshold?—why not $44,476 salary and 6.7% bonus?—still equals $47,476.

Answer 4: No, it does not have to be a 10% bonus. 10% is just the maximum allowed under the regulation effective 12/1/2016.

Question 5: What is the definition of "outside sales"—is this a non W-2 contract worker?—or just someone who calls on accounts in the field?

Answer 5: For this regulation’s purpose, “outside sales” people are folks who are employees of the company and receive a W-2.

Regarding the part of the question for “non W-2 contract worker”, independent contractors (aka sales brokers) who are not on your payroll you are not responsible for. That contractor (and potentially their employees) are responsible for their compliance for this regulation. On the topic of independent contractors I suggest you have a “contract” with them that defines the terms, period, payments (how calculated and when), and a big statement saying they are an independent contractor and responsible for their taxes, etc. For a sample, see http://www.printing.org/page/2561

To clarify outside sales exemption a bit more, we are talking about 541.202. https://www.law.cornell.edu/cfr/text/29/part-541/subpart-F The text is “customarily and regularly engaged ‘“away from the employer's place or places of business.’” 

The rest of the text in this section says the following:

“The outside sales employee is an employee who makes sales at the customer's place of business or, if selling door-to-door, at the customer's home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer's places of business, even though the employer is not in any formal sense the owner or tenant of the property. However, an outside sales employee does not lose the exemption by displaying samples in hotel sample rooms during trips from city to city; these sample rooms should not be considered as the employer's places of business. Similarly, an outside sales employee does not lose the exemption by displaying the employer's products at a trade show. If selling actually occurs, rather than just sales promotion, trade shows of short duration (i.e., one or two weeks) should not be considered as the employer's place of business.”

There is NO percentage of time spent out of the office in the regulation and that is on purpose. This is to give employers flexibility for when a sales person must be in the office.

The Preamble of the 2004 regulation might help a little. It says….

Finally, proposed subsection 541.500(b) stated that in determining the primary duty of an outside sales employee, ‘‘work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work.’’ Under this subsection, other work that furthers the employee’s sales effort, including ‘‘writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences,’’ is also considered exempt work. The Department has retained this general rule as proposed.

The only modification intended in the proposed regulations was removing the restriction that exempt outside sales employees could not perform work unrelated to outside sales for more than 20-percent of the hours worked in a workweek by nonexempt employees of the employer. This revision was proposed for consistency with the ‘‘primary duty’’ approach adopted for the other section 13(a)(1) exemptions. In addition, the current outside sales 20 percent restriction is particularly complicated and confusing since it relies on the work hours of nonexempt employees and requires tracking the time of employees who, by definition, spend much of their time away from the employer’s place of business.

Question 6: Is there anything Congress can do to stop this directive?

Answer 6: There are bills in the House and Senate now. Protecting Workplace Advancement and Opportunity Act (S. 2707/H.R. 4773). PIA urges member companies to contact their Senators and Congressperson about these bills and urge them to co-sponsor it and vote for it. The Senate version of the legislation now has 44 co-sponsors, with the House legislation now at 181 co-sponsors.

Rep. Virginia Foxx (NC) has introduced H. J. Res. 95, which would repeal the rule under the Congressional Review Act. Again, I urge companies to contract their Senators and Congressperson about their support. http://foxx.house.gov/news/documentsingle.aspx?DocumentID=398900 and https://www.congress.gov/bill/114th-congress/house-joint-resolution/95/cosponsors

Question 7: What if the employee takes maternity leave during the year making their gross salary lower than the threshold?

Answer 7: DOL answered basically this same question during one of their webinars recently. Here is what DOL said:

“For exempt employees subject to the salary basis test, deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability. The employer is not required to pay any portion of the employee's salary for full-day absences for which the employee receives compensation under the plan, policy or practice. Deductions for such full-day absences also may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder. 29 CFR 541.602(b)(2). For more information on permissible deductions, see Fact Sheet 17G, available at https://www.dol.gov/whd/overtime/fs17g_salary.pdf.” Source: https://www.dol.gov/whd/overtime/final2016/

Question 8: If the employee does take maternity leave and receives disability, which is only 2/3 of the salary, causing them to fall below the $47,476 threshold, how do you handle that?

Answer 8: See Answer 7 above.

Question 9: The business in question is in garment decoration and has a retail store front that sells mostly collegiate merchandise. Its annual gross income is under $500,000. The full-time salaried manager in question makes a weekly gross of $475. While we do not have enterprise coverage, he may have individual coverage as he handles interstate commerce with vendors and customers. With this new information, could you please let me know if he qualifies for overtime?

Answer 9: If the employee “handles interstate commerce with vendors and customers”, then yes, overtime applies. Note state law/regulation requirements should be checked into as well if this is not the case, click here for state rules.   Also note, the links to those state rules may not cover it in that particular regulation and may be somewhere else in the state’s regulations. A little research should be done.

Question 10: Some of our employees are on fluctuating salary. These people are below the new exempt salary limits. What is your recommendation for us using the fluctuating salary into 2017?

Answer 10: Bottom line, you’ve got to reach $47,476 and meet one of the duties tests (Executive, Administrative, Professional – including computer professionals) to keep your exempts as of December 1, 2016. It sounds like you may have to use the “catch-up” provision quarterly if you have people who don’t hit the target. See chart below.

 

Annual

Quarterly

Monthly

Weekly

Salary Threshold

$47,476

$11,869.00

$3,956.33

$913.00

New Salary

$42,728.40

$10,682.10

$3,560.70

$821.70

10% Bonus

$4,747.60

$1,186.90

$395.63

$91.30

 

Question 11: Are outside sales people affected by this?

Answer 11: No. see https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf

Question 12: On the CSR's, is the $47,476 considered base pay only or pay with commissions added to it

Answer 12: It can be both. You could have a salary of $47,476. Or, you can have a salary of $42,728.40 and a bonus of $4,747.60. Bonuses must be paid AT LEAST quarterly (I recommend monthly). The quarterly bonus then in this case would be $1,186.90. Don’t forget the 90 cents.

Question 13: Our outside sales person make less than the $913.00, but when you add commission their pay is over the $913.00 weekly threshold. Do we have to raise their weekly salary?

Answer 13: If this position is truly outside sales, then nothing needs to be done. There is no salary requirement for outside sales. https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf

Question 14: Is the HR manager exempt?

Answer 14: It can be, but it entirely depends on meeting the salary test and duties test. See the job description for that. During the 2004 regulatory update, HR managers were addressed with the criteria needed to be exempt from overtime. See https://www.law.cornell.edu/cfr/text/29/541.203

Question 15: If someone meets the salary test but not the duties test, can we keep them salaried but keep track of time to pay overtime? What are the disadvantages of doing so?

Answer 15: The position will be nonexempt then (overtime eligible). You still could pay them a salary, but any hours worked over 40 in a week (see California’s daily overtime requirements if you’re California) will have to paid at time and a half. The downside is that what if the employee works fewer than 40 hours in a week? Say 35. Then the employer is giving away 5 hours free. Judgement call for the employer. Note, this position still requires that hours work (time in and time out) still be tracked!

Question 16: If you have a sales person that is base salary plus commission that does NOT work onsite, is there an exception to this ruling? Or, would this sales person have to also hit this salary requirement?

Answer 16: If the sales person is OUTSIDE, it doesn’t matter how the compensation is done to be exempt. There is no salary/income requirement for outside sales. https://www.law.cornell.edu/cfr/text/29/541.500 and DOL's Wage/Hour Division Field Operations Manual (May 2016) and specifically 22f

Question 17: Does PIA have a sample CSR job description?

Answer 17: Sure, see http://www.printing.org/jobdescriptions and scroll down to Sales/Marketing/customer service. Member login required.

Question 18: What criteria define a Highly Compensated Employee exemption (HCE)?

Answer 18: Step 1, Total annual compensation of at least $134,004 as of 12/1/2016. Note: $913/week salary will be required as well. (Currently, the threshold is $100,000 annually.)

Step 2, The employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. For example, an employee may 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 does not meet all of the other requirements in the standard test for exemption as an executive.

See also,

https://www.dol.gov/whd/overtime/fs17h_highly_comp.pdf

https://www.dol.gov/whd/overtime/fs17b_executive.pdf

https://www.dol.gov/whd/overtime/fs17c_administrative.pdf

https://www.dol.gov/whd/overtime/fs17d_professional.pdf

https://www.dol.gov/whd/overtime/fs17e_computer.pdf

Question 19: How will the overtime rule affect sales employees who receive commissions, and are under the new salary threshold?

Answer 19: If outside sales, the salary threshold does NOT apply. If inside sales, they are subject to overtime. There is a “retail” exemption but that there are rules that must be met before you can even apply the retail sales exemption. See https://www.dol.gov/whd/regs/compliance/whdfs20.pdf

Question 20: We pay our sales salaried employees along with commissions on a weekly basis. Some of them do not meet the new salary threshold. Will the commissions cover the new requirements?

Answer 20: If OUTSIDE sales, the salary threshold does not apply, see above. If inside sales, they are subject to overtime. Note, commissions/bonuses affect overtime payments. Plus, time tracking (in and out) is still required! See the retail exemption noted above as well.

Question 21: I'm trying to get more clarification on the CSR exemption. Usually stopping a job requires collaboration. Would this collaboration forfeit independent judgment? Can an employer hang their hat on the "authority to stop a job" to classify the position as exempt?

Answer 21: See https://www.dol.gov/whd/opinion/FLSA/2008/2008_03_06_01_FLSA.pdf and https://www.law.cornell.edu/cfr/text/29/541.203

(f) Purchasing agents with authority to bind the company on significant purchases generally meet the duties requirements for the administrative exemption even if they must consult with top management officials when making a purchase commitment for raw materials in excess of the contemplated plant needs.

I think we can hang our hat on this provision.

Question 22: What about an inside salesman? They do travel some-but they are on the payroll and receive commissions each payroll.

Answer 22: Inside sales are nonexempt (e.g. for overtime). See above if the outside sales exemption applies to you. You may have to restructure the job if you want to use the outside sales exemption.

Question 23: Our salary nonexempt currently to do complete daily or weekly time sheets. Instead, they turn in their overtime daily/weekly which is then approved for payment. Does this suffice?

Answer 23: Technically no. Any nonexempt must have track hours worked.

Question 24: What do you have against Salary plus OT?

Answer 24: It’s the employer’s choice. However, if the employee consistently works less than 40 hours, then the employer is probably not getting what they planned for. Time worked still must be tracked.

Question 25: Is this for a starting yeas salary for 2017 even though it starts 12/1/16 or do the salaries have to be at 47476 by the end of the year?

Answer 25: Think of compensation come December 1, 2016 this way. $913/week, $1,826/biweekly, $1,978/semimonthly, $3,956/monthly

Question 26: If a person is making $35,000 today, tell us what has to happen between now and 12/31/16

Answer 26: The employer has to make some decisions. Bump the salary (+bonus/incentive/commission) to $47,476 by Dec 1. Most firms will probably add some job duties to justify the bump. Or make non-exempt and decide how to determine the hourly rate. Estimate hours worked over 40 in a week and budget for overtime next year. Managers will have to watch this time worked.

Question 27. Where can I find information about non-exempt travel pay requirements?

Answer 27. http://www.printing.org/page/4008 

Published on Friday, July 1, 2016 (updated 12/14/2016)

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