Compliance Alert: DOL Issues New Rules Defining Overtime Exemptions

The new rule’s dramatic increase in salary thresholds will require dealers to reclassify some exempt employees and non-exempt and require justification for classifying some employees as non-exempt.

Additional Details: 

• Salary threshold: Under FLSA, a worker may be exempt from overtime pay if paid on a salary basis over the minimum annual salary threshold and qualifies as an executive, administrative, professional, computer, or outside sales employee (commonly referred to as “EAP” exemptions), defined here. After January 1, 2025, all employees with a salary under $58,656 per year must be reclassified as non-exempt, and therefore receive overtime pay.
• Highly compensated employees: Highly compensated employees performing office or non-manual duties are not subject to the EAP test but are exempt from the FLSA overtime rules if they regularly perform at least one of the duties of an EAP. After January 1, 2025, all employees earning between $58,656 and $151,154 must qualify under all the factors defining an EAP employee.
• Incentive payments and Dealership Exemptions: Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid on an annual or more frequent basis to satisfy up to 10% of the standard salary level. Existing exemptions for salesmen, partsmen, and mechanics primarily engaged in selling or servicing automobiles remain unchanged.
• Next Steps: The new rule will almost certainly be challenged in court. In 2016, a federal court stayed President Obama’s attempt to dramatically increase salary thresholds and ultimately struck it down. A future lawsuit would likely challenge the new rule on the same grounds.

Further Info: NADA filed a comment on the proposed rule as part of the Partnership to Protect Workplace Opportunity (PPW). PPWO’s statement can be found here. NADA’s guide to Federal Wage and Hour, Child Labor, and Wage Discrimination Compliance can be found here.