DOL Issues New Overtime Regulations
By Mark E. Tabakman
After more than a year of commentary, revision and political squabbling, the U.S. Department of Labor (DOL) has finalized and issued significant revisions to the 50-year-old regulations defining overtime exemptions under the Fair Labor Standards Act (FLSA). These final revisions went into effect Aug. 23.
The final regulations differ in some significant aspects from those initially proposed and may not solve the decades-old confusion that prompted the proposed changes in the first place. The regulations also ensure that a great many more workers will be overtime eligible, which is a result that was likely not intended by the drafters. Originally, the DOL estimate was that 1.3 million workers would now be overtime eligible; the new estimate is that 6.7 million workers will now be eligible for overtime.
The Salary and Duties Tests
The DOL had proposed to raise the salary threshold below which workers would automatically qualify for overtime pay – originally designed as a helpful guide to assist employers in deciding which employees were more likely to be exempt based on their income level – from the antediluvian $155-250 a week to $425 a week.
The final salary figure is $455 per week ($23,660/year). Any employee paid less than a salary of $455 per week is automatically non-exempt and overtime-eligible, regardless of the nature of their duties (whether managerial, administrative or professional in nature). The prior rules regarding the mandate to pay a salary if the employer even wants to categorize an employee as exempt have remained untouched; in other words, hourly paid workers are, again, automatically non-exempt.
The DOL had also proposed a “highly compensated” exemption, or a bright-line salary test that would automatically exempt an employee from overtime. The proposed salary figure was $1,250 per week ($65,000 per year including base salary, commissions, non-discretionary bonuses and other non-discretionary compensation paid on at least a monthly basis).
If that level of compensation was paid, the employee would be exempt from overtime requirements if they have an “identifiable” executive, administrative or professional function as described in the “standard duties” tests, but would not have to meet all the elements of such tests. The final rule kicks the $65,000 up to $100,000 for the “highly compensated” label to possibly attach and then, the employee must “customarily and regularly perform any one or more” of the functions of executive, administrative or professional employees. Thus, employees who earn $100,000 or more may nevertheless be entitled to overtime compensation.
So Long to Long and Short Tests
Significantly, the “long” and “short” tests now no longer exist for determining exempt status. Simplified tests have been created that focus on a standardized set of duties in each category rather than whether employees spend 20 percent of their time on certain tasks in order to determine if they are exempt.
The final executive duties test requires employees to be involved in managing the enterprise, direct the work of two or more employees and have authority to hire or fire, or where the suggestions of such employees in such areas as hiring, firing, advancement, promotion or other change in status are given particular weight. The previous requirement that an employee “customarily and regularly exercises discretionary powers” is now gone, but the regulations give specific guidance as to how to determine whether an employee’s suggestions are in fact given “particular weight.”
The final regulations also delete a special exemption for “sole charge” executives that had been initially proposed and add the requirement that those employees with a 20 percent ownership interest in a company, which under the proposals would have exempted them, now must be “actively engaged in management” of the enterprise, or, put differently, no absentee owners may be classified as exempt.
Discretion and Judgment Test
The final administrative duties test retains the requirement that an employee have a “primary duty” of “performing office or non-manual work related to the management or general business operations of the employer or the employer’s customers,” and, regretfully, retains the “discretion and independent judgment” language of the prior regulation.
The DOL proposal was to replace the “discretion and independent judgment” requirement with a requirement that the employee hold “a position of responsibility” with the employer or perform work requiring a high level of skill or training. The proposed revisions would have made the employer’s difficult job of classifying employees as “administrative” far easier, but now, employers must still make fine-line determinations of whether employees are using skill and experience, as opposed to discretion and independent judgment, so on this front, the revision removes but little of the gray areas which have surrounded this exemption for many years.
The proposed professional duties test would have recognized exempt “learned professionals” as certain employees who gain knowledge and skills, not only through formal education, but through alternative means such as a combination of job experience, military training, technical school or community college.
The DOL proposed to eliminate the requirement that professional employees “consistently exercise discretion and judgment.” These proposals did not survive the political opposition/deal-making; the new regulations stay very close to the language of the prior regulations and mandate that the professional secure his special knowledge through “a prolonged course of specialized intellectual instruction,” rather than a combination of education and experience, although they leave a narrow window open for the possibility that an employee may be professionally exempt through a combination of work and experience. The more sweeping, proposed revision would have, for example, made it far easier to classify computer employees as professionals.
The Disciplinary Deduction
The prior salary basis test had prohibited docking exempt employees for suspensions (other than for violations of safety rules) of less than one week in any week in which the employee performed any work. The proposed regulations provided docking for suspensions of less than one week, as long as they are for full rather than partial days, for discipline, workplace violence or harassment. The DOL called that “a common-sense change” that would permit employers to hold exempt employees to the same standards of conduct required of non-exempt, hourly workers. This regulation has been adopted and will protect employers from the specter of facing entire classes of exempt employees possibly being re-classified because one (or some) of them were subjected to (until now) improper less-than-one-week docking for disciplinary reasons.
Concerning the general issue of loss of exempt status for classes of employees emanating from improper docking, the proposed regulations established a test that would insulate employers from such a catastrophic result and create a “safe harbor” if the employer issued a policy prohibiting such docking. The final rule makes significant changes to this proposal and now makes the determination of whether the docking was improper subject to examination of whether the employer “intended” not to pay exempt employees on a salary basis. The final rule introduces a number of factors to be analyzed in making this determination, so there is no bright line, but rather a case-by-case intensive factual analysis, another minefield for employers. It is safe to say, however, that the starting point for every employer is to issue and disseminate a strong policy prohibiting improper docking of exempt employees.
Emergency Services Personnel
In a measure specifically designed to ensure that workers in certain occupations always receive overtime, the final regulations specifically enumerate that “blue collar” workers, i.e. those who perform work involving repetitive operations with their hands as well as police, fire and other emergency service workers receive overtime pay.
Only Part of the Story
The regulations, in our view, do not go as far as they should have and as they were originally proposed. Although there has been some clarity and modernization added to the regulations, they will have the effect of engendering numerous new controversies, perhaps more than the old regulations. The best defense against lawsuits arising under these revised regulations for an employer is to conduct an internal “self-audit” in which the employer assesses the duties/salary levels of currently salaried employees to make determinations as to whether these employees will continue to be classified as exempt.
Compliance Help for Bankers
To help banks comply with new Department of Labor overtime rules, the American Bankers Association’s Community Bankers Council has joined with Employment Law Compliance Inc. (ELC) to offer the “Bankers’ Overtime Exemption Guide.”
The guide is specially designed to help banks comply with the new rules, which specifically address the status of loan officers, mortgage loan originators, personal bankers and other employees involved in assisting personal and commercial customers in evaluating lending alternatives.
“The impact of the new rules could be significant, since the misclassification of employees as exempt continues to be a major area of exposure for banks,” said Steve Greene, president of ELC. “Our guide helps banks take advantage of this opportunity to bring their classification decisions in line with the new rules, while minimizing exposure to employee claims.”
Specifically geared toward community banks, the guide contains several checklists, questionnaires and turnkey tools, including:
• Easy-to-read comparison charts giving an overview of the most significant bank-specific differences between the new regulation and the old.
• Overtime exemption checklists that allow position-by-position assessment of classification compliance.
• Job evaluation questionnaires to aid in developing FLSA-compliant job descriptions for your bank.
• Model job descriptions incorporating the elements of the new regulations for the most common bank positions.
• Key Labor Department rules impacting community banks.
“Employment compliance issues are often a challenge for community banks, which don’t always have dedicated human resources professionals on staff,” said Nicki Brown, chair of ABA’s Community Bankers Council and president and CEO of Wilton Bank in Wilton, Conn. “This guide recognizes that and offers several user-friendly solutions geared specifically for community banks.”
The Bankers’ Overtime Exemption Guide is available to ABA members for $395 and to non-members for $595. To order a copy of the guide call toll-free (866) 801-6302, e-mail email@example.com, or fax your request to (770) 206-3381. To learn more about other Employment Law Compliance human resources solutions and services, visit their Web site at www.employlawcompliance.com.
Mark E. Tabakman is senior counsel for the law firm of Grotta, Glassman & Hoffman P.A. He may be contacted at firstname.lastname@example.org.