Compliance Blog

Written by Shari R. Pogach, Regulatory Paralegal

The Department of Labor (DoL) has released its final rule updating the overtime regulations that will extend overtime pay requirements to over 4 million workers within its first year of implementation. Effective December 1, 2016, the standard salary level at which most white collared salaried employees are eligible for overtime pay under the Fair Labor Standards Act increases from $23,660 to $47,476. The rule also establishes a mechanism to automatically update the salary and compensation levels every three years, beginning on January 1, 2020.

According to the DoL, this final rule is intended to strengthen overtime protections for salaried workers already entitled to overtime and provide greater clarity to workers and employers. The rule updates the salary and compensation levels needed for executive, administrative and professional workers to be exempt from overtime pay requirements but does not include any changes to the duties test. Employers will also be able to count bonuses and commission payments towards up to 10 percent of the new standard salary level.

We are currently reviewing the final rule and will provide a summary and analysis in a Final Regulation for NAFCU members. DoL resources on the final rule, including fact sheets, questions and answers, general guidance and the like, are located here. Below is an example of the DoL's implementation guidance for employers listed under the questions and answers:

Q. How will employers implement the updated salary level requirement established in this Final Rule?

Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:

1. increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
2. pay an overtime premium of one and a half times the employee's regular rate of pay for any overtime hours worked;
3. reduce or eliminate overtime hours;
4. reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
5. use some combination of these responses.

The circumstances of each affected employee will likely impact how employers respond to this Final Rule. For example, employers may be more likely to give raises to employees who regularly work overtime and earn slightly below the new standard salary level, in order to maintain their overtime-exempt status so that the employer does not have to pay the overtime premium. For employees who rarely or almost never work overtime hours, employers may simply choose to pay the overtime premium whenever necessary. The Department accounted for these (and other) possible employer responses in estimating the likely costs, benefits, and transfers of the Final Rule.

Nothing in the rule requires employers to change employees' pay to hourly from salaried, even if the employees' classification changes from exempt to overtime eligible. Employers may choose options #2-#4 above while continuing to pay newly overtime eligible employees on a salaried basis.

NAFCU is concerned that a one-size-fits-all approach puts many small credit unions in a difficult position, particularly regarding employers' ability to offer non-salary-based advancement opportunities such as travel and training, and geographic salary differences. While providing workers fair pay for their hard work, this final rule may actually have severe unintended consequences and hurt growth opportunities for white collar workers it was intended to protect.