Proposed changes to overtime pay by Department of Labor has Michigan employers revisiting exemptions

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Media contacts: Barbara Fornasiero, EAFocus Communications, 248.260.8466, barbara@eafocus.com;
Wendy LoCicero, ASE, 248.223.8006, wlocicero@aseonline.org

Livonia, Mich. —July 1, 2015 — Overtime pay. It’s an issue the American Society of Employers (ASE), a centennial organization and one of the nation’s oldest and largest employer associations, has been following since the Fair Labor Standards Act was passed in 1938. The focus on overtime resurfaced in 2014 when President Obama announced the need for new rules guiding overtime exemptions and, this week, the U.S. Department of Labor announced it has amended the regulations that determine which jobs must be paid overtime and which jobs do not. Michigan employers and others across the country are now getting a refresher course on these exemptions – and learning about the revised exemption, according to ASE Executive Vice President Michael Burns.

The “white collar” exemption, introduced in 1940, requires a position to meet three specific criteria to be exempt from overtime pay:
(1) The employee must be paid a salary.
(2) The amount of the salary must meet a minimum specific amount; the amount has been increased many times since its inception and is currently $455 a week/$23,660 a year
(3) The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations tests.
“In a nutshell, the DOL proposed regulations will change number two, the salary level test, by increasing the minimum salary a job must pay to be exempt from $455/week to a new, indexed salary rate projected to be $970/week ($50,440/year),” Burns said. “If the proposed rules are accepted, the salary basis test will change as the Consumer Price Index for All Urban Consumers cost of living changes. As many times as the salary level has changed since 1940, it has never been indexed to a benchmark and then changed automatically as the benchmark number changes. We are in new territory here with these proposed regulations.”

The DOL is also proposing the Highly-Compensated employee salary-test standard move from its current level of $100,000 to $122,148 and be indexed to the 90th percentile of weekly full-time employee earnings.

ASE notes the DOL left some issues relatively open for further consideration by asking for comment on whether non-discretionary bonuses (i.e., those paid based on specific performance or production goals) should satisfy a portion of the Salary Level test, as well as possible changes to the Standard Duties tests. The Standard Duties test issue to be determined seeks to define a new minimum percent of the employee’s time that must be spent doing exempt work in order to be an exempt employee.

“Some commentators point to California’s law requiring that 50% or more of an employee’s time be spent doing the “primary duty” of exempt work to be considered exempt from the overtime requirement,” Burns said. “That has some in the business community concerned that the DOL is requesting comments on the duties tests in order to make changes to the duties tests and skip a subsequent comment period, which will make the changes immediately final.”

The DOL estimates the aggregate direct cost to employers of this proposed new rule to be between $239.6 million and $255.3 million per year.

“Employers will continue to be able to maintain part-time exempt positions as they have in the past by prorating the actual salary paid to the level of the exempt amount. But it will now be a much more expensive proposition and will likely complicate some flexible work arrangements,” Burns said. “Part-timers whose prorated salaries fall below the mandated level will be considered non-exempt and must keep records of their hours worked.”

The timetable for compliance is expected to be short. There will be the 60-day public comment period on the DOL’s proposed regulations; the DOL will then take a period of time to review the comments and incorporate any changes it deems appropriate. Once the Final Rules come out, employers will most likely have no more than 120 days to come into compliance. The final regulations are expected to take effect in early- to mid-2016.

About the American Society of Employers (ASE) – a Centennial Organization
The American Society of Employers (ASE) is a not-for-profit trade association providing people-management information and services to Michigan employers. Since 1902, member organizations have relied on ASE to be their single, cost-effective source for information and support, helping to grow their bottom line by enhancing the effectiveness of their people. Learn more about ASE at www.aseonline.org.

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