The U.S. Department of Labor has issued a new overtime rule raising the minimum salary threshold for exempt employees.

Currently, to qualify for an exemption from overtime as an “executive,” “administrative” or “professional” employee, an employee must be paid on a salary basis and must earn at least $35,568 annually ($684 per week). Effective July 1, 2024, the annual salary threshold will increase to $43,888 ($844 per week). That threshold will increase again effective January 1, 2025, to $58,656 annually ($1,128 per week). The annual salary of employees who are treated as exempt and whose annual salary falls below the new minimums must be increased to the minimum salary level or the affected employees must be paid overtime for any hours they work over forty in a week.

The final rule also includes an automatic adjustment mechanism to review and update the minimum salary level every three years. The minimum salary for the highly compensated employee exemption was also increased from $107,432 to $151,164.

While litigation challenging the rule could delay its implementation, employers should review the salaries of those employees they treat as exempt from overtime to make sure that their annual salaries will meet the new, higher threshold and, if they do not, will need to decide whether to increase the employees’ annual salary or pay them overtime.

If you need assistance reviewing your pay practices or if you have any questions regarding this new rule, please contact Nancy Abrams at nabrams@sgrvlaw.com or Jennifer Myers Chalal at jmyers@sgrvlaw.com.

The National Labor Relations Board

In the past week, the U.S. Department of Labor (DOL) has issued new final rules that provide greater flexibility to retail industry employers that want to claim an overtime exemption for employees who receive at least half of their compensation through commissions, and that permit employer’s to use a “fluctuating work week” method of payment even if it pays employees periodic bonuses or similar payments, including commissions, premium pay or hazard pay, in addition to a set weekly salary.

Rule Regarding “Retail Concept”

Provisions in the Fair Labor Standards Act (FLSA) allow employers in retail and service industries to treat employees paid primarily on a commission basis as exempt from overtime. In 1961, the DOL introduced as an interpretive rule, a lengthy but non-exhaustive list of 89 types of establishments that it viewed as lacking a “retail concept” that, therefore, could not claim the exemption for commissioned employees. In the same interpretive rule, it also included a separate non-exhaustive list of 77 types of establishments that “may be recognized as retail.” In 1970, the DOL added another 45 establishments that it viewed as lacking a “retail concept.” The list of establishments that lack a “retail concept” included businesses in various industries such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, blue printing and photostating establishments, stamp and coupon redemption stores, and telegraph companies. The “may be” retail list included establishment in industries such as coal yards, fur repair and storage shops, household refrigerator service and repair shops, masseur establishments, piano tuning establishments, reducing establishments, scalp-treatment establishments, and taxidermists.

On May 19, 2020, the DOL withdrew both lists. Going forward, the DOL will apply the same analysis to all establishments to determine whether they have a retail concept and qualify as retail or service establishments (if they sell goods or services to the general public and if they serve the everyday needs of the community in which they are located), permitting establishments in industries that had been on the non-retail list to assert that they do, in fact, have a retail concept and, if they meet the existing definition of retail and other criteria, to qualify for the exemption. The added flexibility will permit industries that had been on the “no retail concept” list to consider whether a commission-based pay arrangement is appropriate for its employees. The DOL believes that a more flexible, fact-based analysis is better suited to account for newly developed industries as well as developments in industries over time regarding whether companies are retail or not.

Fluctuating Workweek

On May 20, 2020, the DOL announced a final rule that will give employers greater flexibility to use the fluctuating workweek method of calculating overtime pay for salaried, nonexempt workers whose hours vary from week to week. The fluctuating workweek method is an alternative to the Fair Labor Standards Act’s regular method of calculating overtime pay, under which employees are paid an hourly wage and receive 1.5 times their regular rate of pay for overtime hours. To use the fluctuating workweek method, employees’ hours actually have to change week to week, and employees must receive a fixed salary even when they work less than their regularly scheduled hours. Additionally, there must be a clear understanding between the business and employees about how workers are paid. With this method, an employee who is entitled to overtime pay receives a fixed weekly salary, which is divided by the number of hours the employee actually worked in the week to determine the week’s base hourly rate. The employee will then receive an additional 0.5 times their base rate for each hour worked beyond 40 in the workweek.

Prior to the new rule, employers generally could not use the fluctuating workweek method to calculate overtime pay for employees who receive pay such as bonuses and other incentive-based pay in addition to the guaranteed salary. Under the amended Rule, employers can pay bonuses, premium payments or other additional pay, such as commissions and hazard pay, to employees without jeopardizing their ability to use the fluctuating workweek method of compensation. Employers must keep in mind, however, that any compensation that is paid in addition to the fixed salary under the fluctuating workweek method will still have to be included in the regular rate of pay for overtime calculations.

It is also important to check state law before utilizing a fluctuating workweek method. Some states, such as Alaska, California, New Mexico and Pennsylvania, do not allow employers to use the fluctuating workweek method at all, and other states have not addressed its use.

If you have any questions, please contact Nancy Abrams at nabrams@sgrvlaw.com or (215) 241-8894.

The first six months of 2019 have seen the NLRB reverse its recent trend of expanding its regulation of employer conduct.  In January, the NLRB issued two decisions, the first of which narrowed the definition of “protected, concerted activity” and the second of which redefined the test for determining what individuals would be considered to be “independent contractors” who are not covered by the NLRA.  Last week the NLRB reversed its own precedent to permit employers to limit a union’s access to areas of its workplace that are open to the public.

Prior to the first January decision, the NLRB would presume that any employee complaint made in a meeting was intended to contemplate group action and was, therefore, presumed to be protected concerted activity.  The NLRB’s decision eliminated this presumption, finding that an individual’s complaint could not be assumed to be group action just because it was made in the presence of other employees.  The Board set out five factors that must be considered to determine whether or not an employee’s complaint was group action, noting that all five factors need not be present to support an inference that the employee is engaging in group action.

The second January decision overturned a 2014 NLRB decision that made it harder for employers to show that an individual was an independent contractor and not an employee covered by the NLRA.  Under the 2014 standard, the NLRB merely looked at whether or not the individual was “economically dependent” on a company, without considering other common law factors it had previously considered, and making it very unlikely that the Board would conclude that an individual was an independent contractor.  With this January decision, the Board returned to its pre-2014 standard, taking into account a variety of factors including the relationship the company and the individual think they are creating and how much control the company actually has over the individual’s work.

Last week, the NLRB overturned a rule the Board created in 1981 limiting an employer’s ability to deny access to a union into areas of its workplace that are open to the public such as cafeterias or restaurants.  In 1956, the United States Supreme Court ruled in NLRB v. Babcock & Wilcox Co. that employers could deny a union access to its property to solicit employees and distribute literature unless the union could prove that it had no other reasonable way to communicate with the employees or if the employer discriminated against the union by permitting other non-employees to solicit or distribute literature on company property.  In 1981, the Board added a rule that a union could not be denied access to any area of an employer’s property that was open to the public as long as the union was not being disruptive, even if the Babcock factors were not present.

The Board overruled this longstanding “public space” rule last week, finding that a hospital did not violate the Act when it forced two union organizers to leave its cafeteria, even though that cafeteria was open to the public.  In doing so, the Board returned to the pre-1981 standard, permitting employers to exclude a union from areas of its workplace that are open to the public unless the Babcock factors were proven.

If you have any questions or would like additional information, please contact Nancy Abrams at nabrams@sgrvlaw.com or 215-241-8894