DOL's final overtime rule has traps for the unwary.

• Author: Sutten, Stephen
• Position: Dept. of Labor

As readers have probably heard, much controversy surrounds the issuance of the Department of Labor's final overtime rule, with sweeping effects on the retail and fast food industries as well as universities and tax-exempt organizations. One of the important areas of review, no matter which direction taxpayers intend to take in response to the new rule, will be their employee benefit plans, where, as a starting point, the various definitions of compensation may need to be accommodated or modified.

Some specific thoughts, from an employee benefit perspective: What is important is to begin with a discussion of the basis of these rules under the Fair Labor Standards Act (FLSA). The FLSA requires most employees in the United States be paid at least the minimum federal wage for all hours worked and overtime pay at time and a half for all hours worked over 40 in a workweek. Unless the worker is deemed "exempt," a white-collar employee will be subject to those rules, and white-collar employees are what this new rule is all about. In general, to qualify for the exemption, an employee must either fit into a class of employees exempted under the FLSA or meet certain tests regarding "job duties" (primarily perform executive, administrative, or professional duties) and be paid on a "salary basis" of not less than a stipulated amount per week. Exemptions for certain employees are not tied to a salary requirement: Teachers (of the traditional K-12 variety), attorneys, outside sales employees, and physicians are examples of these types of employees.

The specific impact of these new rules is to address the salary-basis test by requiring overtime pay for those employees meeting the job-duties test and earning up to $913 per week--that is $47,476 per year. The old compensation threshold was $455 per week ($23,660 a year). The rule now requires that to meet the salary-basis test for the "exemption," employees not otherwise exempted from the overtime pay requirements must be paid a minimum of $913 per week, again, which works out to $47,476 per year. It is also important to note that the rule does not affect the "duties" tests for determining white-collar exemptions and, as mentioned above, the new minimum salary level for exempt-employee status does not apply to certain types of employees who otherwise would qualify for an exemption not tied to the salary requirement. The new threshold for establishing exempt status was set based on the 40th percentile of...