New DOL Rule Suspended

A federal court in Texas has ruled that there is a substantial likelihood that a proposed new DOL rule that increases the threshold salary for exempt employees violates the law. Earlier this year, the Department of Labor published new rules, one of which raised the threshold salary for exempt employees from $23,660 to $47,476. The Texas court issued an injunction preventing the new overtime rules from going into effect. The rules were to have taken effect on December 1 of this year. The DOL likely will appeal the ruling to the Fifth Circuit Court of Appeals, and the issue may go all the way to the Supreme Court. But for now, implementation of the new salary threshold rule for exempt employees is on hold. The decision, along with a new administration, makes it unclear whether and when the new rules will take effect. How should employers respond to the ruling?

  • Nothing in the injunction prevents you from moving forward and changing compensation plans for some employees—raising some salaries or converting them to hourly nonexempt status.
  • If you want to hold off on increasing an exempt employee’s salary but keep him or her in an exempt status, you can. Right now, the injunction leaves in place the old salary basis test. If the injunction is lifted, you may have to implement some changes quickly—so you will need to pay attention to the legal news.
  • If you want to change some of your formerly exempt folks to nonexempt hourly status, you can. Paying someone on an hourly basis is always okay as long as you pay required overtime.

New overtime rules

Julie Heath | Farrow-Gillespie & Heath LLPThe U.S. Department of Labor has published historic changes to the overtime rules that will make approximately 4.2 million currently exempt employees eligible for overtime pay. The new rule increases the salary threshold for employees who are exempt (not eligible to receive overtime) from $23,660 to $47,476. To comply with the new regulations, employers either must increase an exempt worker’s salary to $47,476 so the worker remains exempt, or must reclassify him or her as nonexempt, and thus make the worker eligible to receive overtime.

All employers will have to comply with the changes made to the overtime regulations by December 1, 2016.


Farrow-Gillespie & Heath LLP | Dallas, TX

Independent contractor status under scrutiny

The Department of Labor has clamped down on its definition of “independent contractor,” declaring that most workers are “employees” under the law. Last month, the DOL issued its Administrator’s Interpretation No. 2015-1, analyzing the FLSA’s “economic realities” test used to determine whether a worker is an employee or independent contractor.

According to the DOL, misclassification of employees as independent contractors is a massive and growing problem. According to the DOL, certain benefits such as FMLA leave, minimum wage, overtime pay, unemployment insurance, and workers’ compensation are being wrongfully denied. The Administrative Interpretation, which runs 15 pages in length, opens the door for lawsuits brought by contractors who feel they should be classified as employees under the law. For employers, not only is payment of benefits at issue, but also payment of payroll taxes to the IRS.

The legal test to determine employment status weighs the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer.

No single factor is determinative in analyzing the employment relationship, the DOL says. Employers should take a new look at their independent contractor positions to ensure that workers are properly classified.

Farrow-Gillespie & Heath LLP | Employment Law

Exempt employee definitions may change

Under the Fair Labor Standards Act (FLSA), employees who are “exempt” are not eligible for overtime payments. Employers are not required to pay overtime to an exempt employee, regardless of the number of hours the employee works.  Numerous categories of exempt employees exist, but three of the primary categories include employees in professional, executive, or administrative roles.

Under current FLSA regulations, an employee need make only a salary of $23,660 per year ($455 per week) to be eligible for exempt status under the professional, executive, or administrative categories.

This week, the Department of Labor proposed new regulations that would more than double this minimum salary requirement to $50,440 per year ($970 per week), thus radically decreasing the number of employees who would qualify to be exempt from overtime. The actual changes may be months away, and will not be implemented until the conclusion of a “comments” period. However, employers should pay careful attention to these proposed changes because they may necessitate a significant change in overtime policies and payments.