On September 24, 2019, the United States Department of Labor announced a new final rule regarding eligibility for overtime pay.   The rule requires employers to revisit their classifications of employees as exempt in order to ensure compliance. 

As I discussed in previous articles (Texas Federal Judge Blocks New Overtime Rules and Speaking of Overtime Rules and One Final Overtime Update) the DOL announced rules in 2016 to dramatically increase the salary threshold in order for certain categories of employees to meet the standards for exemption from federal overtime requirements.  The rules were met with litigation and a stay of their enforcement. 

The new final rule raises the salary threshold from $455 a week to $684 a week, or $35,568 a year.  Employers may now use nondiscretionary bonuses and incentive payments, such as commissions to satisfy up to 10% of the salary level.  Employees will still have to meet requirements related to their duties in order to meet the standards of exemption for the overtime requirements. 

This final rule will become effective on January 1, 2020.  As we advised in 2016,  employers should take steps to ensure compliance by the end of the year.  The first step is to identify any employees who are classified as exempt but are making less than $422 a week, and develop a plan to reclassify those employees, or revise their compensation.  This is a good time to revisit the job duties of those employees to ensure that they meet the applicable standards for exemption in terms of their duties as well as their salary.  This is also a good time to review overtime policies to ensure appropriate recordkeeping, efficient use of overtime and compliance with applicable law. 

AMM can help employers navigate these new rules and review their employee classifications to ensure compliance and minimize risk. 

Reprinted with permission from the April 18th, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.

The Supreme Court’s decision in Encino Motorcars, LLC v. Navarro interprets a very specific exemption to the overtime rules imposed by the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (“FLSA”), but the Court’s language and reasoning have game-changing ramifications.  The Court’s rejection of the principle that courts should narrowly construe exemptions to the FLSA turns decades of FLSA caselaw on its head.

The facts of Encino Motorcars are deceptively narrow.  Employees classified as service advisors for a car dealership challenged the car dealership’s classification of the service advisors as exempt from the FLSA.  The FLSA requires that employers must pay overtime to employees who work more than 40 hours in a week.  29 U.S.C. § 207(a).  The dealership claimed the exemption under a statutory exemption that applies to car dealerships.  29 U.S.C. § 213.  Specifically, the section in question exempts from overtime pay requirements:

Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.

Reprinted with permission from the January 18, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.

In a recent decision, the Pennsylvania Superior Court complicated the already tricky business of paying nonexempt employees on an hourly basis for Pennsylvania employers.  In Chevalier v. Hiller, the Court found that a “fluctuating workweek” overtime calculation method, approved by federal regulation, violates Pennsylvania’s Minimum Wage Act, 43 P.S. §333.101  et seq. (“PMWA”).  The Superior Court reversed the trial court’s grant of summary judgment in favor of the employees, in a comprehensive opinion that requires Pennsylvania employers to review carefully their overtime calculation methods.

The employees in this case were managers at various levels for GNC.  GNC calculated their overtime pay using the “fluctuating work week method.”  Under this method, in an example provided by the Superior Court, overtime was calculated as follows:  employees were paid $1000 a week regardless of the number of hours worked in a week.  In one week, the example goes, the employee worked 50 hours.  GNC thus calculated the employees “regular rate” at $20 an hour.  GNC then paid the employee an additional $10 an hour for the ten hours over 40, resulting in $1100 in wages for the 50 hour week.

The employees argued that this method was improper under the PMWA, and the trial court agreed.  The trial court opined that the rate instead should have been calculated using the “forty hour” method.   Under this method, the regular rate is determined by dividing the weekly salary of $1000 by forty hours, to produce a rate of $25 an hour.  Then, the additional ten hours over forty worked should have been paid at time and a half for an additional $375, resulting in $1375 in wages for the 50 hour week. Notably, had the Superior Court agreed with the trial court, the cost of paying nonexempt employees on a salary basis would have increased exponentially. 

Instead, the Superior Court disagreed with the trial court and found that the regular rate was properly calculated using the “fluctuating workweek method,” that is, that the employer’s calculation of the regular rate by dividing the employee’s salary in a given week by the number of hours the employee actually worked did not violate the PMWA. 

However, the Superior Court found that GNC’s method of paying for the overtime hours violated the PMWA.  The Superior Court found that PMWA required the payment of an overtime premium of 1 and ½ times the employee’s regular rate for all hours in excess of forty in a work week.  Accordingly, using  the fifty hour example set forth above, that employee should have received $200 in overtime. 

The Superior Court began its analysis by noting the purpose of the PMWA, which mirrors the language of the FLSA, “to protect employees who do not have real bargaining power.”  The Court noted that no Pennsylvania appellate court had evaluated the propriety of the fluctuating workweek method under the PMWA, but that some federal courts had addressed the PMWA’s overtime requirements.  In those cases, the federal courts agreed with the conclusion of the Superior Court regarding the premium due, but did not address the appropriate method for calculating the regular rate. 

The Superior  Court’s holding imposes a different requirement than the federal Fair Labor Standards Act.  Under the FLSA, and cases interpreting it, an employer is free to use the fluctuating work week method, and to pay a premium of one-half the hourly rate for hours over forty in a workweek, on the theory that the regular rate for those hours is captured in the salary.  While the Superior Court found that the PMWA permitted a calculation of the regular rate, consistent with the FLSA, using the fluctuating workweek method, the Superior Court found that Pennsylvania law would not permit a premium of only ½ that regular rate.

Instead, the Superior Court found that the applicable regulations required the payment of one and one-half times the regular rate for hours over forty in a workweek. The applicable regulations require that “each employee shall be paid for overtime not less than 1-1/2 times the employee’s regular rate of pay for all hours in excess of 40 hours in a work week.”  24 Pa. Code § 231.41.    The regulations do permit the payment of half the regular rate only for employees who are paid a flat sum for a day’s work.  34 Pa. Code § 231.43(b).  Finally, another regulation permits employer and employee to come to an agreement as to the “basis rate” for payment of work in excess of the maximum workweek, but only if the employer uses a multiplier of one and one-half.  In other words, the Superior Court found, in all instances where the regulations address the appropriate multiplier, the regulations required the payment of one and one-half times the regular rate.  The Court pointed out that the Department of Labor did not adopt the federal regulation that expressly permits the payment of half the regular rate as the overtime premium, although it could have done so.  The Court found the decision not to adopt that federal regulation was a deliberate reflection of the purpose to protect employees.   

The Superior Court’s decision creates a dilemma for Pennsylvania employers using the fluctuating workweek method.  Pennsylvania employers currently paying an overtime premium of half the hourly rate for hours over forty in a workweek to nonexempt, salaried employees, are complying with federal, but not Pennsylvania law.  Employers will need to evaluate their overtime calculation policies and review whether paying nonexempt employees on a salary basis continues to make economic sense. 

Patricia Collins is a Partner with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation, and health care law. To learn more about the firm or Patricia Collins, visit www.ammlaw.com

 …At least until there is another overtime update.

 Let’s review the history of these regulations.  Prior to leaving office, President Obama’s Department of Labor significantly revised the salary requirements in order for certain classifications of employees to qualify for exemptions from overtime pay under the Fair Labor and Standards Act (“FLSA”).  The DOL increased the salary minimum to qualify for an exemption from approximately $23,000 to approximately $47,000.  Small employers and nonprofits scrambled to find a way to comply with the new regulations by the compliance deadline of December 1, 2016.

 On November 22, 2016, the United States District Court for the Eastern District of Texas issued an injunction against the implementation of those rules.  Small employers and nonprofits breathed a sigh of relief and tabled their new policies and employee classification changes. 

 Between November 22, 2016 and August 31, 2017, much happened in the Eastern District of Texas and the Fifth Circuit.  Appeals were filed, extensions of time to file briefs were granted, and the Department of Labor, now led by President Donald Trump, revised its position on these rules.  President Obama’s DOL had argued that the new regulations were a proper exercise of DOL’s rule making, and the President’s executive, powers.  President Trump’s DOL argued that while the DOL and the President were within their rights to establish and revise a salary requirement, they would not defend this particular salary requirement.

 On August 31, 2017, the Eastern District of Texas agreed, essentially, with the Trump DOL.  The Court found that while the DOL is free to set and revise a salary requirement, this particular salary requirement was not enforceable. 

 The good news is that the salary requirement set by the Obama DOL was so high as to present a significant financial and operational burden for small employers and nonprofits, and this ruling eliminates that concern.  However, the ruling leaves this DOL, or any DOL, free to revisit the salary requirement.  In other words, we will all take this ride again sometime in the future. 

 Employers should continue to ensure compliance with the existing rules, and check back in with AMM for any future changes to the salary requirement. 

Patty Collins, a Partner with Antheil, Maslow & MacMinn, will be joined by Cindy Bergvall, CPA,  of Bee, Bergvall & Co. for a panel discussion on new Department of Labor overtime regulations and their impact on employers.  This informative breakfast seminar is hosted by The Catalyst Center for Nonprofit Management on October 7th at Aldie Mansion in Doylestown.  There is no charge for this event, but registration is required. 

These new regulations will require action from almost every for-profit and not-for-profit organization with employees earning less than $47, 476 per year. Participants will learn about the changes in the law and what organizations will need to do when the law goes into effect on December 1, 2016.