New Overtime Rules Proposed




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May 01, 2019

By Cathy A. Johnson, CPA, CGMA Chief Administrative Officer and CFO for Terry Lockridge & Dunn/World Trend Financial

Here we are again, three years after the last attempt to significantly change the rules that govern overtime pay. The U.S. Department of Labor (DOL) has proposed new rules about who is exempt from overtime pay. There are many employee categories under Section 13 (a) of the Fair Labor Standard Act. This article is limited to discussing the potential changes to those included in Section 13 (a) (1): bona fide executive, administrative and professional employee categories.

In order for an employee in one of the above categories to be exempt from overtime pay, they must meet several tests. The rules in effect today are as follows:

Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
  • The employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
  • The employee must have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemption

To qualify for the administrative employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  • The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
  • The employee's primary duty includes the exercise of discretion and independent judgement with respect to matters of significance.

Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  • The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgement;
  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
  • The employee's primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

What could be changing?

To be exempt from overtime pay, each of the above categories includes a minimum compensation test of $455 per week (or $23, 660 per year). The proposed change is increasing the minimum to $35,308 per year (or $679 per week). Additionally, the DOL is committing to periodic reviews to update the salary threshold, although there would be no mechanism for automatically updating the salary and compensation levels going forward. Any changes would continue to require notice-and-comment rulemaking.

What does that mean for your business?

Even if your employee meets all of the other tests for exemption from overtime pay, but does not meet the new minimum compensation test, they must be paid overtime for all hours in excess of 40 hours in a week. This is a substantial increase and could very likely impact several of your existing employees.

We will keep you updated as information becomes available. For now, it would be a good idea to look at your payroll records and see which employees are currently exempt from overtime pay, as some could be below the expected new minimum compensation regulation.

More information about the proposed rule is available at www.dol.gov/whd/overtime2019. The Department of Labor encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. Comments must be received by May 21, 2019 to be considered.




Category: Features