Mid-May, The Department of Labor released its final rule on overtime compensation, which will add new regulatory burdens and costs to many Big “I” member agencies and their small business clients.
Yesterday, the Department of Labor (DOL) released its final rule on overtime compensation, which will add new regulatory burdens and costs to many Big “I” member agencies and their small business clients. The rule is set to take effect on Dec. 1, 2016.
Generally, under the Fair Labor Standards Act, employers must pay employees overtime for any hours they work above a 40-hour work week, with numerous exceptions. As finalized, the rule would largely require that employees who make less than $47,476 receive overtime pay, while mandating that most workers who make more than $47,476 and meet certain requirements would not generally be entitled to overtime. This is a 100% increase from the current salary threshold of $23,660. However, the final threshold is slightly less than the $50,440 figure previously the DOL proposed in a July 2015 draft proposal.
The final rule also requires the threshold be automatically updated every three years. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage census region—the Southeast—estimated to be $51,168 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning Aug. 1, 2019.
For the first time, businesses can count commissions toward up to 10% of the salary threshold, as long as employees receive them on at least a quarterly basis. Although it is far from a fix to the rule’s onerous requirements, the Big “I” advocated for this concession in an April meeting with the Obama Administration to help alleviate the impact on insurance agencies, where most employee compensation is primarily commissions-based.
Despite the changes to the rule, the Big “I” remains concerned that the magnitude of the update will negatively impact many Big “I” members and their clients. The regulation will likely reduce employee flexibility and require careful tracking of employee hours, as well as compliance audits. Furthermore, to comply with and mitigate costs from the rule, Big “I” member agencies will have to reclassify impacted employees and institute a combination of salary raises, overtime pay, some forbidden work, outsourcing and benefits cuts.
Some members of Congress have also raised concerns about the proposed rule. Sens. Tim Scott (R-South Carolina) and Lamar Alexander (R-Tennessee), and Reps. Tim Walberg (R-Michigan) and John Kline (R-Minnesota) introduced S. 2707 and H.R. 4773, the “Protecting Workplace Advancement and Opportunity Act,” in March. The legislation would halt the current rule and forbid the DOL from re-proposing the rule unless it meets certain conditions, including protections for small businesses. The Big “I” supports this legislation and will redouble its efforts to enact legislation prior to the Dec. 1 effective date. However, any legislative efforts are likely to result in a Presidential veto.
The Big “I” will provide more detailed information on the rule in next week’s edition of the News & Views e-newsletter. The DOL has also issued relevant guidance for small businesses.
Jennifer Webb is Big “I” federal government affairs counsel.
