Banks Take Note As New Overtime Regulations Take Effect Jan. 1, 2020
Guest commentary prepared by Charles Jellinek and Barry Hester with Bryan Cave Leighton Paisner LLP
On Sept. 27, the U.S. Department of Labor finally announced its long-awaited changes to the regulations on overtime compensation. The DOL’s previous attempt at modifying these standards, a similar rule published May 23, 2016, was invalidated by a Texas federal district court in 2017. This version is more employer-friendly than the DOL’s 2016 rule, but nonetheless most Missouri banks will likely be paying more in overtime come Jan. 1, 2020. Bankers will be familiar with this rule as a dividing line between
nonexempt employees (those for whom time-and a-half overtime pay is mandatory) and exempt “executive, administrative or professional” or “EAP” exempt employees.
Under the final rule, effective Jan. 1, 2020, the minimum salary required for most exemptions under the Fair Labor Standards Act will rise from $455 per week to $684 per week (or from $23,660 to $35,568 annualized). The minimum salary for the “highly compensated employee” exemption will rise from $100,000 to $107,432 per year. Under the 2016 rule, these increases were to $913 per week ($47,476 annualized) and $134,004 respectively.
In addition, employers will be permitted to use nondiscretionary bonuses and other incentive payments, including commissions, to satisfy up to 10% of the required minimum salary, as long as that compensation is paid at least annually. And if an employee fails to earn sufficient incentive compensation in a 52-week period to maintain “exempt” status, the employer may make up the shortfall (up to 10% of the minimum required salary) in a one-time payment in the first pay period after the end of the 52-week period.
The DOL rule issued in 2016 would have raised the minimum salaries for EAP exemption considerably higher, making an estimated 4 million workers eligible for overtime pay, and it would have provided for automatic increases in the salary thresholds going forward. The final rule announced in September is predicted to make 1.3 million workers eligible for overtime and does not provide for any automatic adjustments in the future. In supplemental material published with the final rule, the DOL does reaffirm a commitment to “better implement” a FLSA statutory requirement that the DOL define and delimit EAP exemptions “from time to time,” but it withdrew a proposed obligation that it do so on a predetermined basis once every four years.
The FLSA does not preempt state laws with stricter exemption standards but with limited exceptions not relevant to banking, Missouri law expressly aligns with these DOL exemptions. Notably, no changes are being made to the other elements of the EAP exemption (e.g., the so-called “duties” test) or the “outside sales” test.
In formulating this update the DOL took into account aspects of its 2016 methodology that led to the previous rule’s tie-up in court. For this reason, while there is always a chance that a similar challenge will be brought against this rule, it is less vulnerable to invalidation, so bankers should plan for it to take effect as scheduled Jan. 1, 2020. This type of planning should include an evaluation of current exempt employee designations and the development of exemption plans for employees who have previously been exempt but no longer will be under the new rules.
This article, published in the October 2019 issue of The Missouri Banker, was submitted by MBA associate member Bryan Cave Leighton Paisner LLP. The firm is a full-service provider of legal services for its banking clients, including lending, litigation, bankruptcy/workout, bank regulatory and mergers and acquisitions. The firm has offices in Jefferson City, Kansas City and St. Louis and is online at bclplaw.com. Charles Jellinek is a labor and employment partner in the firm’s St. Louis office and may be contacted at firstname.lastname@example.org. Barry Hester is a bank regulatory and payments attorney in the firm’s Atlanta office and may be contacted at email@example.com.