Overtime Exemption Regulations

Updated Nov. 28, 2016

By Greg Ripple, chairman, NBAA Employment Issues Working Group

Update: On November 22, 2016, a federal district court in Texas decided that the Department of Labor (DOL) had overstepped its bounds in issuing the updated regulations that were scheduled to take effect on December 1, 2016. The court issued an injunction preventing the DOL from implementing or enforcing the regulations. The preliminary injunction applies nationwide, to all employers.

The injunction is a preliminary injunction, so it is still possible the overtime rule might be enforced by the district court’s final decision or on appeal. Likewise, it is also possible that the Department of Labor in the Trump Administration might not continue the fight to implement the rule. The only thing certain for now is that employers need not comply with them by the original December 1 deadline.

NBAA members that have already re-classified employees or provided some employees raises to maintain the employees’ exempt status are encouraged to consult with their legal counsel or human resources advisors regarding how to handle the effect of the injunction.

The Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 in a workweek. There are several important exceptions to this rule that apply to business aviation operations:

• The FLSA exempts from its overtime pay requirements “any employee of a carrier by air subject to the provisions of Title II of the Railway Labor Act.” Title II of the Railway Labor Act applies to “every common carrier by air engaged in interstate or foreign commerce …” Most Part 121 and Part 135 operators are subject to the Railway Labor Act, and are therefore exempt from the overtime pay provisions of the FLSA. Most Part 91 operators, however, are not exempt under this provision and must either comply with the FLSA or establish that their employees meet one of the other exemptions.
• The FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative or professional (EAP) employees. These so-called “EAP” exemptions require employees to perform certain qualifying duties and be paid at least a certain, minimum salary.
• The FLSA also has an exemption for “highly compensated” employees. Employees that earn above a certain threshold are exempt from the overtime requirements if they perform some, but not all, of the duties necessary to qualify as a bona fide executive, administrative or professional employee.

The new DOL regulations increase the minimum salary necessary to qualify for the above exemptions. The final rule does not change the duties necessary to qualify for these exemptions.

Changes to Overtime Exemption Rules

• Minimum Salary: The minimum salary for exempt executive, administrative and professional employees increases from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). This minimum salary will be recalculated every three years to ensure that it remains equal to the 40th percentile of earnings for full-time salaried workers in the lowest-range Census region (currently, the South).
• Highly Compensated Employees: The minimum salary level for highly compensated employees to be exempt will rise from $100,000 to $134,004. This minimum salary will also be recalculated every three years, to equal the 90th percentile of full-time salaried workers.
• Bonuses: In a departure from current regulations, the new rule says 10% of the minimum $913 weekly salary may come from non-discretionary bonuses, incentive payments and commissions, paid at least quarterly. Employers may make “catch-up” payments at the end of each quarter if the employee did not earn enough in nondiscretionary bonuses and incentive payments to meet the new minimum salary amount. For Highly Compensated Employees, there is no change from the current regulation: so long as the employee earns at least $913 per week in guaranteed salary, the remaining portion of the $134,004 may include commissions, nondiscretionary bonuses and other nondiscretionary compensation.

The new final rule can be viewed in its entirety here.

Steps to Ensure Compliance

With only six months to comply, employers should take the following steps:

1. Review Current Workforce Wage Rates: Employers should identify each employee who is presently exempt from overtime, but whose salary is close to or below $913 per week.
2. Determine Whether to Increase Salary to Preserve Exempt Status: For any exempt employee whose weekly salary is below the expected new minimum of $913, the employer must decide whether to (1) increase the employee’s salary to maintain the employee’s exempt status, or (2) reclassify the employee as non-exempt. Keep in mind that the minimum exempt salary is almost certain to increase every three years.
3. Determine Methods of Payment and Recording of Hours for Newly Non-exempt Employees: If the employer decides that a presently-exempt employee will become non-exempt, the employer will also have to decide (1) the non-exempt method by which the employee will be paid (hourly, weekly or other), and (2) how the employer will track and record the hours the employee works, including overtime hours and paid time off.
4. Update or Create Good Policies: Employers should also review current policies regarding timekeeping, “off-the-clock” work and overtime.
5. Develop a Communication Plan: The new rule will have a major impact on many employees – not only on their pay, but on employee morale and workplace culture as well. An effective communication plan will be important in successfully implementing the changes the new overtime rule will bring.

Summary

Compliance with the FLSA can be a complicated and detailed process. Employees who are not paid overtime that are entitled to receive it may collect double damages and their attorney fees in a lawsuit to enforce their rights. Business aviation employers that are affected by the new regulations are encouraged to act promptly to determine if the new regulations affect their operations and to take the necessary steps to ensure that they are prepared to comply with the new regulations by Dec. 1, 2016.

Greg Ripple is a partner with the practice of Miller Johnson in Grand Rapids, MI. He can be reached at (616) 831-1797 or rippleg@millerjohnson.com.