If you like to open your presents on Christmas Eve, the U.S. Department of Labor is for you. Last night, the DOL posted the final revised rule on overtime on its website ahead of its planned announcement this afternoon.
What a gift for employment lawyers! Needless to say, I was up late unwrapping all my “gifts.”
Remember: These changes apply only to the so-called white-collar exemptions: Executive, Administrative and Professional. So, if the employee falls within a different exemption, this rule does not apply.
And, as I’ll explain below, for Connecticut employers, the challenges are just beginning. The rule applies to all employers covered by the FLSA (FLSA covers employers engaged in interstate commerce and gross volume of $500,000.00 in sales) but Connecticut employers will also have to worry about state law as well.
Here are the highlights (the DOL has released a chart comparing all the changes as well):
- As expected, the new rule changes the salary basis to $47,476 annually ($913/week) — slightly less than the proposed rule last year. In plain English, anyone who makes less than this amount must be paid overtime for any hours over 40 in a work week — regardless of his or her duties.
- This threshold will change every three years, and will be tied to the salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South.
- The new rule makes no changes to the duties test. If an employee had duties that fell within the executive exemption, for example, they will still be exempt — that is, if their minimum salary now meets the threshold of $47,476.
- The rule increases the “highly compensated employee” exception to the exemption to $134,004 – and that too will change every three years. (But note that Connecticut law does not have such an exception.)
- The rule becomes effective December 1, 2016. Note that December 1 is a Thursday, so employers will have to make sure that the entire pay period is compliant with the new rule.
- The new rule will now permits employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. This is a brand new element and should help employers meet that threshold (a bit).
For Connecticut employers, though, take a deep breath before jumping in. Connecticut has its own state law and regulations that are now in conflict with this federal rule. And as the CTDOL notes in its guide to wage & workplace laws: “The laws that provide the higher or stricter standard shall apply.”
What does that mean here? We’ll have to wait and see if the Connecticut Department of Labor updates its guidance for starters. It is challenging for Connecticut to update its regulations so, for now, we can only hope that the CTDOL might at least shed some light on how it might enforce the state rules. (There is a helpful chart that it has used in the past, for example, that could be updated.)
But here, on first glance, are three other items of concern I have for now:
- The salary test in Connecticut does not contain an allowance to consider nondiscretionary bonuses. Will that change (at least as a matter of enforcement) now that the federal regulations allow employers to consider that? And how should the deduction rule be applied in such an instance? Would Connecticut recognize an increased salary basis but without such bonuses as the more “protective” of the law?
- The CTDOL has previously recognized a “no man’s land” (its words) where the interaction of the rules is confusing; how will it deal with a similar (and much larger) no man’s land where the salary is higher, but the duties test has been met?
- Connecticut does not have an exemption for highly compensated employees. The new federal rule does not change state law and thus the HCE exemption will still not apply here. Will the CTDOL reconsider that in light of the increased threshold at a federal level?
What’s the Takeaway for Employers in Connecticut?
For employers in Connecticut, do not just blindly adopt the new federal rule into your workplace.
For example, increasing the base salary to avoid overtime obligations under the federal rule may not matter if the employee does not meet the duties test under Connecticut law for the same exemption.
This is one of those situations that will require a case-by-case look at specific positions and the interaction between state and federal law. Unfortunately, you’ll probably want to consult heavily with various HR consultants or lawyers specializing in employment law.
So, as a said before, stay calm. You can do this. You have until December.