News Watch: Executive Overtime Exemption and Growth Stage Businesses
Employers are watching for a possible reprieve from new overtime rules affecting the minimum wage threshold for determining "exempt" employees. A new administration and pending court cases are being followed carefully.
Recap of the Department of Labor's new overtime pay rules:
As reported in our NMRS Labor and Employment Alert of May 23, 2016, effective starting December 1, 2016, the "minimum salary" base for exemption purposes is adjusted upward to the point that startups and other growth stage companies need to pay careful attention to how they are paying their professional and executive employees who would otherwise be considered "exempt" employees. In particular, the notion of "join us and we will pay you a nominal salary but give you loads of stock options" may result in an unwanted administrative headache of tracking actual hours and paying overtime for key employees.
The current minimum salary threshold for "exempt" employees is $455 per week. The DOL regulations specify that the new minimum salary threshold will be $46,475 per year or $913 per week. Yes, almost double. Additionally, the minimum salary will increase every three years.
What counts as salary? Regular pay only (deferrals don't count). Plus, guaranteed bonuses/incentive pay (including commissions). But don't get too excited, because such bonus/incentive pay can only be used to satisfy up to 10% of the annual minimum salary amount. Stock options and other equity grants do NOT count as either "regular pay" or a "guaranteed" bonus. Discretionary bonuses and performance-based bonuses do NOT count as being "guaranteed".
The (potentially) good news:
The U.S. House of Representatives may leave early, on or before December 9th. The reason is that there are more than a dozen finalized rules -- including the DOL overtime rule -- that were published in the May 23 Federal Register. Leaving by December 9th would move up by a week those regulations that could be overturned by the Congressional Review Act (CRA) – including the overtime rule. Under CRA, any regulation finalized in the last 60 days of a legislative session can be revisited in the next session and voiding the regulation can be put to a vote. In this case, it would mean sending nullification legislation, known as a resolution of disapproval, to then President Donald Trump.
As of November 17th, the House had been in session 51 days since May 23. That means the House can meet only nine more days in 2016 to be able to reach back 60 legislative days to review the DOL rule.
IMPORTANT CAUTION: In the CRA overturn scenario, the Department of Labor overtime regulation would still take effect on December 1, 2016. If all falls in to place, it could then be overturned early next year. This creates a bit of a challenge for employers as the new rules will be in effect until any repealing legislation is adopted and signed into law.
In addition, we are watching the news out of the federal courts in Texas. A federal district judge in the Eastern District of Texas is currently presiding over a lawsuit filed by 21 states to enjoin the new overtime regulations, and is expected to rule soon.
Watch for updates.
Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner. Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work.
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The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.