Legal Update Volume 2016, Number 3

U.S. Department of Labor Final Overtime Rule:  What’s next

On May 18, 2016, the U.S. Department of Labor issued the much anticipated Final Overtime Rule.  The Final Rule, which takes effect on December 1, 2016, doubles the salary threshold—from $23,660 ($455 weekly) to $47,476 per year ($913 weekly)—under which most salaried workers are guaranteed overtime. Additionally, the Final Rule added a provision allowing employers to count nondiscretionary bonuses, incentives, and commissions toward up to 10 percent of the required salary level for the standard exemption, so long as employers pay those amounts on a quarterly or more frequent basis.

Moreover, beginning on January 1, 2020, this new salary level will be automatically updated every three years.  However, the final rule does not have an impact on employees who are not subject to either the salary basis or salary level tests, such as doctors, teachers, lawyers and outside salespeople.  Likewise, the Final Rule did not alter the standard duties test for employees who primarily perform executive, administrative, or professional duties

Since the increase in the salary threshold is significant, the issuance of the Final Rule provides employers an excellent opportunity to evaluate their existing exempt workforce by classification to determine the most cost-effective way of complying with this new rule.

For instance, some employers might consider, implementing flexible work schedules using the Puerto Rico Flextime Act in order to reduce overtime caused by working in excess of 8 hours in a 24 hour rolling period as a result of shift changes.  Also, employers could evaluate adequate staffing initiatives for purposes of eliminating the need of incurring overtime or minimizing it. Also, employers can design incentives and bonuses based on desired Company goals to offset the cost of increasing the salary basis with additional income generated by the productivity motivated by the incentives and bonuses.

Furthermore, employers can evaluate whether to increase a particular employee’s salary basis by comparing the cost of the salary basis increase versus the estimated cost of overtime to be incurred by the employee in said role.  With adequate monitoring and controls of overtime usage, employers may be compelled to increase the salary basis in instances of job classifications that have higher overtime hour demands.

In fact, the DOL provides in Q&A guide in its website that employers do not have to convert employees earning below the new salary threshold to hourly pay.  Hence, employers may opt to leave the existing salary in place and pay overtime whenever it is incurred.

To complicate matters further, employers should be mindful of the effect the final version of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), HR 5278 of May 18, 2016, may have on the applicability of the Final Rule to Puerto Rico.  As it currently stands, section 404 of HR 5278, bars the application of the Final Rule to Puerto Rico until a report from the Comptroller General assessing the impact of the Final Rule is prepared and the Secretary of Labor certifies to Congress that applying the Final Rule to Puerto Rico would not have a negative impact on the economy of Puerto Rico.  The timeline for the report by the Comptroller General is two years.  Hence, if PROMESA is approved as drafted, the Final Rule will not apply in Puerto Rico for quite some time.

In sum, we understand the next 6 months or so will offer employers adequate time to consider all available options to comply with this new rule, if and when Congress determines whether to approve PROMESA.   We are available to assist you in your compliance efforts as it pertains to this rule.  For more information, feel free to contact Carmen Lucía Rodríguez, Esq. or Gerardo J. Hernández, Esq. at clrodriguez@nrhlawpr.com or ghernandez@nrhlawpr.com.

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