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As dealers are aware through communications from multiple sources, earlier this year the Department of Labor finalized its Regulations updating and implementing exemptions from minimum wage and overtime pay for executive, administrative and professional employees (“White Collar Workers”). Since all employees are entitled to be paid the minimum wage, this Notice will not address that topic. Rather, it will only address guidance on what dealers need to do to comply with the new Overtime Requirements Rule prior to its effective date of December 1, 2016.
OVERVIEW OF THE NEW RULE
The Final Rule focuses primarily on updating the salary and compensation levels needed for White Collar Workers to be exempt. Specifically, the Final Rule:
1. Sets the new standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest region of the country, which is $913.00 per week or $47,476.00 annually (an increase from the current $455.00 per week or $23,660.00 annually). For those dealers who pay employees biweekly, the required amount is $1,826.00 per pay period; for those dealers who pay semi-monthly it is $1,978.00 per pay period; and for those dealers who pay monthly, the new salary level is $3,956.00 per month.
2. Sets the total annual compensation requirement for highly compensated employees to $134,004.00 (previously $100,000.00). These employees must also receive at least $913.00 per week.
3. Establishes a mechanism by which the salary and compensation levels above will be automatically updated every three (3) years to maintain the levels of the above percentiles, commencing on January 1, 2020.
4. Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level ($91.30 per week). This requirement must be met quarterly.
5. Permits a “CATCH-UP” payment at the end of each quarter to ensure compliance.
MYTHS ABOUT THE NEW OVERTIME RULE
Based on our conversations with some of our clients, there are some apparent misunderstandings as to the effect of this Rule on dealership employees.
MYTH NO. 1: The Rule changes how I must pay salespersons, partsmen and mechanics.
NOT TRUE. The new Rule only affects white collar salaried workers. It does not change the other overtime exemptions dealerships have long claimed such as those for salespeople, service writers, partsmen and mechanics/technicians. It also does not change the dealer’s ability to claim the overtime exemption for those employees who receive more than half (½) their earnings through commission and are paid at least one and a half (1½) times the minimum wage (commonly known as the Retail Commission Exemption).
The Rule also does not affect the Business Owners Exemption which provides that an employee that owns at least a bonafide twenty percent (20%) equity interest in a business is exempt from overtime requirements provided he/she is actively engaged in the management of the business.
MYTH NO. 2: Employees who receive a salary are automatically exempt.
NOT TRUE. Salaried status and exempt status are SEPARATE concepts. Paying an employee a salary does not mean the employee is automatically exempt. The employee must still meet the duties test described below and also receive a salary of at least $913.00 per week.
MYTH NO. 3: Supervisors and managers are automatically exempt.
NOT TRUE. An employee’s job title is irrelevant in terms of complying with the overtime rule. The fact that an employee is a manager or supervisor does not mean the dealer can automatically claim an exemption for that employee. As with salaried personnel, the supervisor/manager must still meet the duties test and be paid at least $913.00 per week in salary.
MYTH NO. 4: Outside salespersons must be paid in compliance with the new Rule.
NOT TRUE. An exempt outside salesperson must be customarily and regularly engaged away from the dealership and have a primary duty of making sales or obtaining orders or contracts. There are no salary or fee requirements for exempt outside sales employees.
MYTH NO. 5: The Rule only applies to full time employees.
NOT TRUE. Whether an employee is full-time or part-time, the standard salary level to qualify for the exemption is $913.00 per week. The salary level may not be prorated for part-time employees. However, dealers may prorate the required salary if an employee works less than the full week of his/her first and/or last week of employment.
MYTH NO. 6: Paying an employee $913.00 per week in salary satisfies the exemption.
NOT TRUE. While payment of $913.00 per week is one (1) part of the equation, standing alone, it does not satisfy the exemption. Dealers must also “guarantee” that the employee will receive that amount weekly and the employee must meet the duties test outlined below.
MYTH NO. 7: Dealers will have to change the job descriptions of White Collar employees to comply with the new Rule.
NOT TRUE. The revised Rule does not make any changes to the duties tests under which dealers have been operating since the Rule was last amended in 2004. Salaried workers who are guaranteed and earn at least $913.00 a week will be exempt from overtime pay if they meet the appropriate test for the two (2) classifications most common at dealerships: Executive and Administrative.
Executive Exemption. To qualify for executive employee exemption, all the following tests must be met…
