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“EXEMPT” IS OVER A review of the new regulations for “overtime-ineligible” employees.


Editor’s note: On November 22, 2016, just as this magazine issue was being printed, a federal judge issued a preliminary injunction that temporarily halts implementation of the overtime rule discussed below. The injunction, coupled with the outcome of the U.S. elections, places the rule in doubt. Until such time as the injunction is lifted, the December 1 implementation date is temporarily suspended.

The U.S. Department of Labor

(“DOL”) has issued new overtime regulations which are currently scheduled to go into effect on December 1, 2016. In Maryland alone, an estimated 79,630 currently nonexempt employees (1.9% of the working population) will become entitled to overtime under the new regulations. Under the old regulations, executive, administrative, or professional employees (EAPs) were generally “exempt” from overtime if they performed certain job duties (the “duties test”) and were paid a salary (the “salary basis” test) of not less than $455 per week (the “salary level” test). Highly compensated employees (HCEs) were exempt from overtime if

they were paid at least $100,000 and passed a “minimal duties” test, meaning that they customarily and regularly performed at least one of the exempt duties of an exempt EAP. Under the new regulations, the DOL will now refer to nonexempt employees as “overtime-protected” or “overtime- eligible,” and exempt employees will be referred to as “overtime ineligible” or “not overtime-protected.” The new regulations do not make any changes to the duties tests for either EAPs or HCEs, however, the salary levels will be raised substantially for both overtime-ineligible EAPs and HCEs. Finally, in meeting the new standard salary level for overtime- ineligible EAPs, employers will be allowed to include nondiscretionary bonuses and make “catch-up” payments as needed.

Raising the Salary Levels

The DOL has set the new “standard salary level” for EAPs at the 40th percentile of full- time salaried workers in the lowest-wage Census Region in the United States. Based on data from 2015, the standard salary

level will increase from $455 per week to $913 per week (or from $23,660 per year to $47,476 per year), effective December 1, 2016.

The salary level for HCEs will also

change, and will now be set to the 90th percentile of full-time salaried workers nationally. Based on census data from 2015, the new salary level for HCEs will be $134,004, also effective December 1, 2016.

Part of the purpose of tagging the salary levels to census data is to allow for “automatic updates” to the salary levels for EAPs and HCEs. The first update to the salary levels will take effect on January 1, 2020, and salary levels will be updated every three years thereafter. The DOL will calculate the new salary levels based on data from the second quarter of the year preceding the update, and will post the new salary levels at least 150 days prior to each update (or August 4th of the preceding year).

Bonuses and “Catch-Up” Payments

Employers are now permitted to count nondiscretionary bonuses, incentives, and commissions toward up to 10% of the standard salary level for overtime-ineligible EAPs. Examples of such “nondiscretionary” payments include bonuses that are announced to employees to encourage them to work more steadily, rapidly, or efficiently (in other words, bonuses tied to productivity or

6 BEHIND THE WHEEL — Q4 Winter 2016

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