The U.S. Department of Labor
announced on September 24, 2019 its final rule that will make over a million
new American workers eligible for overtime pay for the first time in over 15
years.
The final rule focuses on updating
the requirements for an
Covered employers under the Federal
Labor Standards Act (“FLSA”) are required to pay employees a minimum wage
($12.00 per hour as of January 1, 2019 in Massachusetts) and pay overtime
premium pay at the rate of 1.5 times the regular rate of pay of the employee
who works more than 40 hours in a workweek (defined as any 7 consecutive work
days by the FLSA). In Massachusetts, the overtime minimum wage is $18.00 per
hour and while Massachusetts overtime rules do not require overtime after 8
hours in a day, overtime pay does kick in after a non-exempt employee works
more than 40 hours in a given work week.
The final rule focuses on updating
the requirements for an employee to be exempt from overtime pay under the FLSA
for so-called “white-collar” employees a/k/a as EAP employees (i.e. executive,
administrative, professional, outside sales, and computer employees). As
provided for in the executive summary of the final rule:
“Since 1940, the regulations
implementing the exemption have generally required each of the following three
tests to be met : (1) the employee must be paid a predetermined and fixed
salary that is not subject to reduction because of variations in the quality or
quantity of work performed (the “salary basis test”); (2) the amount of salary
paid must meet a minimum specified amount (the “salary level test”); and (3)
the employee’s job duties must primarily involve executive, administrative, or
professional duties as defined by the regulations (the “duties test”) The
Department of Labor … has long used the salary level test as a tool to help
define the white collar exemption on the basis that employees paid less than
the salary level are unlikely to be bona fide executive, administrative, or
professional employees, and, conversely, that nearly all bona fide executive,
administrative, and professional employees are paid at least that much. The
salary level test provides certainty for employers and employees, as well as
efficiency for government enforcement agencies. The salary level test’s
usefulness, however, diminishes as the wages of employees entitled to overtime
increase and inflation reduces the real value of the salary threshold.”
While the final rule does not
change the “duties test”, it does level the playing field by increasing the
salary level thresholds necessary under the “salary level test” so that
employees who are protected by the FLSA’s minimum wage and overtime provisions
are effectively distinguished from EAP employees exempted from such
requirements due to the fact that inflation has reduced the real value of the
wages of employees who should have been entitled to overtime wages over the
past 15 years.
The final rule updates the earning
thresholds necessary to exempt EAP employees by raising the standard weekly
salary level from the currently enforced level of $455 per week to $684 per
week (the equivalent to $35,568 per year for a full-year employee). This is a
substantial increase from the current $23,660 annual salary that was last
updated during the George W. Bush administration in 2004. The final rule
further raises the total annual compensation requirement for “highly
compensated employees” from the currently enforced level of $100,000 per year
to $107,432 per year which equals the 80th percentile of earnings of full-time
salaried workers nationally. Additionally, the final rule allows employers to
now count nondiscretionary bonuses and incentives payments (including
commissions) toward satisfying up to 10% of the standard salary level paid
annually to the employee – a reflection of pay practices now becoming more
common in the workplace.
It is estimated that after the
final rule goes into effect in 2020 that over a million currently exempt
employees will, without some intervening action by their employers, gain
overtime eligibility and that approximately 2 million white collar workers who
are currently nonexempt because they do not satisfy the EAP duties tests but
satisfy the salary level test will have their overtime-eligible status
strengthened in 2020.
The Department of Labor further identified
its commitment to update the standard salary level and the “highly compensated
employees” total compensation levels every 4 years so to avoid having another
15 years go by without taking inflation and rises in salary into consideration.
Co-chair
of REBA’s legislation section, Doug Troyer is a founding member of the Boston
and Braintree firm of Moriarty, Troyer & Malloy, LLC and focuses his
practice on condominium and real estate litigation, real estate development and
permitting, land use litigation and employment law. He has successfully tried
numerous cases before state and federal courts at both the trial and appellate
levels and has represented clients in a variety of administrative proceedings
and private dispute resolution forums. Doug can be contacted at troyer@lawmtm.com.
If you have an employment related
question you can e-mail Douglas at dtroyer@lawmtm.com.
