Trump Administration Issues New Overtime Rule

The Trump Administration’s Department of Labor (DOL) published a Final Rule on September 25, 2019, updating overtime rules for employers in the United States. The action caps several years of deliberation on overtime policy that began with the Obama Administration’s efforts to update the policy late in the president’s second term.

The Obama Administration issued a rule that would have dramatically increased the levels for the standard salaries test and for highly compensated individuals, which sparked legal challenges from the business community and halted the implementation of changes.

The Trump Administration picked up the issue and initiated its own rulemaking effort to address overtime policies. GCCA actively worked with coalition partners including the Small Business Legislative Council and the Partnership to Protect Workplace Opportunity in both expressing concerns with the Obama era proposals and support for revisions that would be more workable for members.

The Final Rule represents a significant improvement over the regulation advanced during the Obama Administration and includes many of the provisions GCCA and its coalition partners advocated.

According to DOL, the revised policy will allow up to 1.3 million additional workers to become newly entitled to overtime. This is achieved by updating the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.

The Fair Labor Standards Act (FLSA) gen- erally requires employers to provide overtime pay of at least 1.5 times the regular wage, when employees work more than 40 hours in a week. However, there is a “white collar” or “EAP” exemption from overtime require- ments for “any employee employed in a bona fide executive, administrative, or professional capacity.”

The statute gives the Secretary of Labor the authority to define the terms for exemption.

An employee must meet the requirements of the following three tests to be found exempt:

  1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. The amount of salary paid must meet a minimum specified amount (the “salary level test”);
  3. The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the regulations (the “duties test”).

The Final Rule updates both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees.” These levels had not been revised since 2004, and changes were made to reflect growth in wages and salaries. DOL asserts that the update to the standard salary level will maintain the traditional purposes of the salary level test and will help employers more readily identify exempt employees. The Final Rule does not make changes to the “duties test.”

 

Key Provisions of the Final Rule

Standard Salary Level

The Final Rule sets the standard salary level at $684 per week ($35,568 for a full-year worker). To be exempt under a “white collar” exemption, an employee’s primary duties must be executive, administrative, profes- sional, computing or outside sales (as definedby regulation) and the employee must be paid a salary of at least $684 a week.

The new salary amount accounts for wage growth since 2004 and uses currently available data by looking to measure the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (currently the South), and/or in the retail sector nationwide.The salary threshold increase provided in the Final Rule is considerably less than the $913 per week (or $47,476 annually) included in the Obama-era rules.

Treatment of Nondiscretionary Bonuses and Incentive PaymentsThe Final Rule allows employers to use non- discretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For bonuses or incentive pay- ments to count towards the salary level test, the payments must be made on an annual or more frequent basis.

If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year to retain exempt status, the Final Rule permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch- up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

The concept of “catch up” payments was introduced in the Obama overtime policy and is being carried forward in the Final Rule.

 

Updating

The Final Rule rejects the policy of including automatic increases to salary thresholds, as were included in the Obama era policy. Instead, DOL expresses its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking. GCCA and its coalition partners had expressed concerns about the impact automatic increases would have, particularly on small businesses.

The new overtime policies go into effect on January 1, 2020.

Source: Cold Facts Nov/Dec 2019 Edition