Double-Barreled Rulemaking. Last month, we commented on the Department of Labor’s (DOL) March 7, 2019, proposed rulemaking to increase the salary test threshold for overtime exemptions, potentially making another million or so people eligible for overtime pay. Next, in a companion rulemaking proposal, issued March 28, 2019, and summarized in our post last week, the DOL announced that it seeks to clarify how the “regular rate” is calculated for the purpose of calculating overtime.
Now What? Whether and when the new salary change will take effect is unknown—but it could be later this year, barring litigation delays such as we saw with the Obama administration’s attempt to effect similar changes. Applying the same calendar math, the regular rate changes could take effect later this year or in early 2020. Either way, it would be worthwhile for HR professionals to think ahead.
The Choice. Many employers already adjusted in advance for what they thought would be more onerous Obama-era changes in 2016. For those who haven’t: For exempt employees making less than the proposed new threshold of $35,308 per year (subject to periodic review and changes), the change would present a choice between pay increases or reclassifying employees as nonexempt overtime workers. Considerations:
Equivalent Options for Nonexempt. Salaried employees who are no longer exempt may present morale problems from the change to hourly worker status. There are lawful options for cushioning the blow. For example:
Either way. Bear in mind: For salaried overtime workers, the special rules limiting the employer’s ability to dock the pay of exempt salaried workers would no longer apply. And employers will want to try and avoid the unintended consequence of hourly subordinates making more than their salaried nonexempt supervisors.
Regular Rate Changes
The Exclusions. Turning to the regular rate changes, the calculation of the baseline hourly rate for overtime purposes, termed the “regular rate” in wage and hour law, is based on all compensation received for employment, subject to the exclusions stated in the wage and hour statute—Section 7(e) of the Fair Labor Standards Act—or the FLSA.
Discretionary Bonuses. For the proposed regular rate changes in play, of primary concern on the change list: Discretionary Bonuses.
“While attendance, work quality, and longevity bonuses, as those terms are commonly used, are usually paid pursuant to a prior contract, agreement, or promise causing the employee to expect such payments regularly, and therefore are non-discretionary bonuses that must be included in the regular rate, there may be instances when a bonus that is labeled as one of these types of bonuses is not in fact promised in advance and instead the employer retains discretion as to the fact and amount of the bonus until at or near the end of the period to which the bonus corresponds.”
Official Examples. If adopted, the regulations would add specific examples of bonuses that may be considered discretionary (adding to those already in the regs that are not discretionary), such as employee-of-the-month bonuses, bonuses for unique or extraordinary efforts with no pre-established criteria, severance bonuses, bonuses for overcoming difficult challenges, and the like—where “the fact and amount of payment is in the sole discretion of the employer until at or near the end of the periods to which the bonuses correspond and that are not paid “pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”