New FLSA Overtime Rule FAQ

We recently hosted a very informative webinar surrounding the newly set-forth Department of Labor (DOL) laws that are expected to go into effect on December 1, 2016. At the end of the presentation we received an overwhelming amount of questions which you can read through below. 

Question | Are Graphic Artists considered “creatives” under the creative exemption?
Answer | Probably not. It depends on what they’re doing - if they’re doing incredible art as a part of that graphic design then that’s a potential, but typically I’m going to say no. 

Question | How are inside sales reps classified?  They are paid low salaries plus commissions.  Are commissions calculated in the minimum salary?
Answer | There are a lot of considerations there. Typically commissions can only be 10%. I would run that one past your attorney because there are a whole lot of different arrangements there. I would suggest legal help on that one because there are so many different scenarios with that.

Question | We've heard that we can include sales commissions or bonuses as part of the calculation - can you explain that part of the new regulation?
Answer | What I’ve seen is that 10% of bonuses are eligible for consideration of salary. Keep in mind that only applies to bonuses that are part of a specific formula - not discretionary bonuses. So if at the end of the year you see how everything went and you divide out based on the overall performance of the organization that would not be counted. You really want to be careful with that.

Question | We have a few mortgage originators making less than the new minimum on their base pay but will now earn a quarterly commission which will push them over the new minimum. Do we still need to raise their base to at least the new minimum?
Answer | Again, that 10% rule would apply.

Question | Are HR Specialist considered exempt?
Answer | You really need to look at the details of the job and not the job title. I would argue that sometimes you look at a job title and assume it is exempt, but if they are primarily doing admin work, then no they are not exempt. Now if they are doing professional level work such as work that would require an HR degree, a significant body of knowledge, and they are making policy decisions,  then yes, that would be an exempt position. You really have to dig into the specific functions of that role. 

Question | Can you explain base salary plus commission to get to the base salary
Answer | Yes, that is the 10% again. For regular employees you need that 10% bonus. If you are truly an outside sales rep, that is a totally different thing and there is no minimum salary for that and it would be exempt because it is commission based. 

Question | We currently pay our salaried employees that have a salary under the 47K amount overtime . Can we continue to do this?
Answer | Exempt and salaried can be different things; you can pay a nonexempt employee a salary as long as you pay them overtime. So you can guarantee a nonexempt employee 40 hours a week. If you have someone who is dreading that conversation about moving employees to an hourly position you can pay them as a nonexempt salary with overtime pay. So you would guarantee them a salary of 40 hours a week and track that time. So yes, you can pay a salary to a nonexempt employee.

Question | Would an office manager be considered under the Executive Exemption?
Answer | Only if the office manager manages 2 or more employees, or runs a significant part of the business. If it is truly just admin work, than they would not qualify. If they are providing organizational level work, than yes. I would encourage you to look at that very closely. If they are supervising a staff of clerical, then that is an easy call and they would be considered executive exempt. 

Question | So performance bonuses at year end don't count in this 10%?
Answer | That is true, yes.

Question | How is the automatic increase going to work? Is the DOL going to track this or is this an honor system? Have we seen a % increase or any other projected increases?
Answer | To start with the last question first, no we have not seen any projections on what that might be. Frankly I am a little concerned because they are doing it as employees percentile to exempt employees  and now they're bumping the minimum of what those exempt employees must earn. Logically to me, if you artificially add a floor to all of them, then it raises the potential for a significant bump. I think that is something that will need to be clearly looked at in the next 3 years. This will be an honor system as far as implementing it, however know that we will be eligible for audit and if we are audited then stand back because you may or may not be in compliance at that point. 

Question | Is it 10% of base compensation or 10% of the bonus amount?
Answer | You can have that base salary met by 10% of a bonus. So if you are at $44k as a salary and you get a bonus of $4000 (the 10%) that would put you up to $48k and put you at a safe place. 

Question | How are most employers coming up with the new hourly rate - are they taking the old salary dividing it by 2080?
Answer | Yes. That is true. 2080 is the standard number of hours in a year for calculating the hourly rate. 

Question | Does the federal regulation supercede the state?
Answer | Absolutely, yes. Unless the state is more specific. For example, in Michigan we have a higher minimum wage than the federal government does, then you have to go through the state. With FLSA the state doesn't really have regulation around that space, at least in Michigan. I can only answer that for Michigan specifically. 

Question | The number one determining factor is the minimum salary to be exempt, correct?  
Answer | No, it is a consideration, but not the only consideration. They need to meet the exemption requirements of one of those other positions. The only one you can be safe on is the highly compensated range which is the 134,000 if someone is above that then you’re safe to say that based just on salary you’re good. If it is less than that you need to double check all the requirements. 

Question | For the bonus to count does it have to be paid monthly or quarterly or is annually good too?
Answer | Either one is good; as long as it is formula based you are good. 

Question | When salaried staff go hourly, does it mean we have to pay their hourly rate of pay for all hours on call, or can we still pay the shift stipend and then pay the dollars per hour for when they are actually on a call?
Answer | You can have them on call at a fraction of their regular pay and only pay hourly rate when they are actually working. 

Question | Our IT and Marketing manager both have crucial roles and make decisions that impact the company, but they don't manage any people. Can they be exempt? 
Answer | Yes. If you manage a function, but not people, that is fine. That could fall under executive exemption or the administrative exemption depending on the situation.

Question | So to remedy an employee that is now deemed exempt, you can either increase their salary to meet the threshold if they meet the other tests, you can change back to hourly and monitor their hours and there is a third option about changing their hourly rate to meet this requirement, can you go further into the third option?
Answer | I think what you’re saying is paying them a salary as a nonexempt employee. So let’s say you have an HR Specialist that has experience in HR but no degree. A lot of work is administrative by nature and they make $44k per year. An employer could reclassify the position and continue to pay the same rate and have the same job functions, and simply change the classification to nonexempt. To do this, the employee would need to track their hours and if they happen to work overtime they will be paid out for the overtime worked. This means that even if they do not work 40 hours during the week they will still get paid for the full 40 hours. Overtime is the only time you will see a difference in pay. 

If you’re learning more about the DOL changes you can view the full webinar here: