If it’s been awhile since you dusted off your agency’s employee job descriptions, now might be a good time to start. As of Dec. 1, a new Department of Labor (DOL) rule will affect your agency’s compensation structure.

Under the Fair Labor Standards Act (FLSA), employers must pay employees overtime for any hours they work above a 40-hour work week, with numerous exceptions. As finalized, the rule would largely require that employees who make less than $47,476 receive overtime pay, while mandating that most workers who make more than $47,476 and meet certain requirements would not generally be entitled to overtime.

The new rule essentially does four things:

1) Raises the annual salary threshold for which an employee can be considered exempt (i.e. overtime pay is not legally required) under the administrative, executive, professional, or computer “white-collar” exemptions from $23,660 to $47,476, effective Dec. 1, 2016. The $47,476 annual salary threshold only applies to employees for which the employer wishes to claim, and who otherwise qualify for, one of the above named exemptions.

2) Allows for nondiscretionary bonuses and incentive payments (including commissions) to be used to satisfy up to 10% of the $47,476 salary threshold, effective Dec. 1, 2016. This 10% cap only applies to calculating the $47,476 minimum salary threshold for the relevant “white-collar” exemptions.

3) Raises the salary threshold for “highly compensated employees” from $100,000 to $134,004, effective Dec. 1, 2016.

4) Requires that both the $47,476 and $134,004 thresholds be automatically updated every three years, starting Jan. 1, 2020.

What are the ‘white-collar’ exemptions?

The FLSA requires that most employees be paid at least the federal minimum wage for all hours worked and overtime pay at time and one half the regular rate of pay for all hours worked over 40 hours in a workweek. However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempts certain computer employees.

Effective Dec. 1, 2016, with the exception of the -narrowly-defined outside sales exemption, to qualify for one of the “white-collar” exemptions, employees must first earn a salary of at least $913 a week, or $47,476 annually. Currently, the salary threshold is $455 a week, or $23,660 annually. The salary level is not a minimum wage requirement, and no employer is required to pay an employee the salary specified in the regulations unless the employer is claiming an applicable “white-collar” exemption.

Any employees, except for outside sales employees, who earn less than $47,476 annually cannot be classified as an exempt employee under one of the “white-collar-” exemptions and must be paid overtime for all hours worked over a 40 hour workweek. If an employee earns a salary greater than $47,476 on an annual basis he or she is still legally entitled to receive paid overtime for all hours worked over a 40 hour workweek, generally at a rate not less than one and one-half times their regular rate of pay, unless the employee qualifies for one of the “white-collar” exemptions by satisfying the “duties test” for that individual exemption [see sidebar].

It is important to have clear job descriptions that are regularly reviewed against actual job duties for all employees for which the employer is claiming exempt status. The classification of any individual employee is a case-by-case determination dependent on that employee’s specific job duties, state, and federal law. Employee classification is not determined by job title alone; it is a fact-specific inquiry.

There are two other “white-collar” exemptions: the professional exemption and the computer exemption. The professional exemption applies to learned professionals, practicing doctors or lawyers, teachers and creative professionals, such as actors or musicians. Some accountants and actuaries may fall under the professional exemption depending on their job duties and educational training. Insurance agents do not fall under this exemptions. The exemption for computer professionals is narrow, and would not include a position such as CTO, though a CTO may fall under one of the other “white-collar” exemptions. The computer exemption applies to positions such as a software engineer.

What is the ‘highly compensated employee’ (HCE) exemption?

Effective Dec. 1, 2016, under the HCE exemption an employee must earn at least $134,004 a year in total compensation. This is a 34% increase from the current threshold of $100,000. The “duties test” for the HCE exemption requires that the employee’s primary duty be office or non-manual work and the employee must customarily perform at least one of the duties or responsibilities of an executive, administrative or professional employee. For example, an employee who makes a salary of $50,000 a year and earns $100,000 a year in commissions, and who customarily and regularly supervises four employees would fall under this exemption because their salary meets the HCE requirements and they meet one of the requirements of the executive exemption.

How are producers and other agency employees impacted by the new rule?

All agency employees—including producers—who are designated as employees and not independent contractors will be impacted by the rule, dependent on their current salary and employee classification status. 

• For any employee who is properly classified as non-exempt (i.e. overtime pay is required), no change is required under the new rule, regardless of employee compensation.
• For any employee who is properly classified as exempt (i.e. overtime pay is not required) under either the administrative, executive, professional, or computer exemption and who makes less than $47,476 on a salary basis, that employee’s status must be changed to non-exempt and overtime must be paid for all hours worked over a 40 hour workweek, generally at a rate not less than one and one-half times their regular rates of pay, or their salary must be raised over the threshold.
• For any employee who is properly classified as exempt under either the administrative, executive, professional, or computer exemption and who makes more than $47,476 on a salary basis, no change is required under the new rule.
• For any employee who is properly classified as exempt pursuant to the outside sales exemption, no change is required under the new rule, regardless of employee compensation.
• For any employee who is properly classified as exempt under the HCE exemption, and who makes less than $134,004 their salary must be raised over the threshold, or they must be reclassified.

Does the DOL have a specific rule or guidance regarding employee classification for insurance agencies?

There is no hard and fast rule for the classification of producers, customer service representatives or other agency personnel. The DOL has issued some guidance that is relevant to independent insurance agencies, however, classification of employees is a case-by-case determination depending on that employee’s specific job duties within the agency, as well as relevant state law. When considering the classification of employees, consider:

• 29 CFR § 541.203 states that: “Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products and marketing, servicing or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.”
• In an opinion letter from 2009 the DOL opined on when life insurance agents could be classified under the outside sales or the administrative exemption, stating “[D]epending on the duties actually performed, an insurance agent may qualify for either the outside sales or administrative exemption…. Each agent must be evaluated on an individual basis…”
• The DOL does not generally consider insurance sales to qualify for the FLSA retail sales exemption, which exempts certain commissioned employees from overtime pay.

Can commissions and bonuses be counted toward the salary threshold?

Under the new rule employers for the first time will be able to use nondiscretionary bonuses, incentive payments and commissions to satisfy up to 10% of the $47,476 salary threshold, provided those payments are made on a quarterly or more frequent basis. This 10% cap only applies to calculating the $47,476 minimum salary threshold for the relevant “white-collar” exemptions; it does not apply to employees properly classified as non-exempt or outside sales employees. Under the HCE exemption, $47,476 of the $134,004 salary threshold must be earned on a salaried basis, however, the remainder of the salary can be earned from nondiscretionary bonuses and incentive payments (including commissions).

If you have additional questions based on specific job duties or functions of your employees, contact an attorney or human resources professional in your state. The DOL has also provided resources on the new rule such as FAQs, webinars and non-profit compliance guides.

The Big “I” is working with Partnership to Protect Workplace Opportunity, a coalition of various businesses and trade associations that the rule will negatively impact, on congressional outreach and advocacy.

Jennifer Webb is Big “I” federal government affairs counsel. For the complete Q&A document on the overtime rule, visit the Big "I" online and click on the government affairs webpage.