MRR Article: What Does the New DOL Rule Mean for You?
By: Tami Z. Hannon, Esq.
Mazanec, Raskin & Ryder Co., LPA
As you likely know, the Department of Labor (DOL) recently issued its final rule raising the salary requirement for overtime exempt workers. What does this rule mean for you?
- All employers covered under the FLSA are covered by the proposed changes.
If your business is subject to the FLSA or you have overtime exempt workers, then you are subject to the new regulations regardless of whether you are a private or public employer.
- This requirement does NOT impact those exempt as teachers, lawyers, or doctors.
These professionals have been historically exempt from the salary basis requirement and continue to be so under the new regulations.
- The new salary level only impacts the required pay of your overtime exempt employees.
To be exempt from overtime under the FLSA, the employee must meet two tests. First, the employee must perform certain job duties that the FLSA views as being “white collar” or “exempt” job duties. This new regulation does not change what those job duties are. The second part of the test is whether the employee who performs those job functions is paid a certain annual amount. Historically, that amount was $23,660 per year. The new regulations increase that amount to $47,476 per year through December 31, 2019. In order for your overtime exempt employees to keep their exemption, they must be paid a minimum of $47,476 per year. Please note that even if an employee is making at least $47,476 per year, the employee must still perform “white collar” job duties to qualify as overtime exempt.
For employees close to this level, consider whether you wish to increase their salary to maintain the exemption, maintain their current pay level but pay them overtime or keep their work to 40 hours per week.
- This requirement does NOT impact your non-exempt employees.
Employees that were previously paid overtime are still entitled to overtime. This new regulation does not impact their pay levels or requirements.
- An employee’s non-discretionary bonuses and incentive pay now count towards up to 10% of the required salary level.
What this means is that for an employee at the $47,476 mark, $4,747 of their salary can come from non-discretionary bonuses, commissions, or other incentive pay linked to productivity or profitability. To be considered part of the salary, the payment must be made at least quarterly and cannot be subject change at the discretion of the employer. Rather, once the criteria for earning the bonus are met – certain production standards, performance standards, or overall company profitability – payment of the bonus must be mandatory. Note that bonuses may be paid beyond this level, but no more than $4,747 will count towards meeting the necessary salary amount.
A non-discretionary bonus is one that you have promised, contracted, or agreed to pay to the employee and have no “discretion” in determining the fact of payment. These can include bonuses in collective bargaining agreements, production bonuses, bonuses for quality and accuracy of work, attendance bonuses, and bonuses to induce employees to remain or continue employment until payment. The latter can likely include longevity bonuses awarded to employees.
Meeting the pay requirement with bonuses:
- Each pay period the employee must be paid a minimum of 90% of the $47,476 or higher salary level. For an employee paid bimonthly this means a minimum of $1,643.40 per pay period.
- The remaining 10% will be paid in quarterly bonuses. If the total at the end of each quarter does not equal 13 weeks of full salary, then the employer must pay the remainder to the employee.
- In our example, our bimonthly employee must be paid $11,869 per quarter ($913 per week for 13 weeks). At the end of the first quarter, the employee received 90% of this amount, or $10,682.10 through his regular pay. If the employee does not meet the criteria for an incentive pay, the employee must still receive $1,186.90 in his next paycheck to ensure that the employee will be paid $47,476 by year’s end. This calculation must be done quarterly as you only have one pay period for the “catch up” payment for missed bonuses.
- If you include bonuses and incentive pay in your salary, make certain to do the math to retain the incentive.
As the law requires you to pay the minimum $47,476 yearly even if the employee does not reach the necessary levels to receive the bonuses, make certain to do the math and make the bonuses worth reaching for. Using our above example, the employee knows that he or she will still be entitled to a $1,186.90 check at the end of the quarter even if he or she does not meet the productivity or profitability standards to qualify for the bonus. To keep the incentive, make sure that the associated incentive pay is greater than this amount to encourage the employee to continue to excel at performance.
For additional information or questions on the implementation of the new DOL rule at your company, please contact any of the following MRR Employment & Labor Law attorneys:
Tami Z. Hannon
440.424.0009 / firstname.lastname@example.org
John T. McLandrich
440.287.8298 / email@example.com
Stacy V. Pollock
614.324.0163 / firstname.lastname@example.org
Neil S. Sarkar
440.287.8292 / email@example.com