The U.S. Department of Labor (DOL) announced a Final Rule increasing the salary threshold for Fair Labor Standards Act (FLSA) overtime exemptions.

Currently, the minimum salary requirement for the “white collar” exemptions (executive, administrative, and professional) is no less than $684 per week ($35,568 per year). Under the DOL’s new Final Rule, this amount will increase to:

·                $844 per week ($43,888 per year) on July 1, 2024

·                $1,128 per week ($58,656 per year) on January 1, 2025

Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement, provided that such payments are paid on an annual or more frequent basis.

The Final Rule contains further automatic increases to these “white collar” exemptions every three years, beginning on July 1, 2027, based on then-current earnings data. These automatic increases will be published by the DOL within 150 days prior to implementation.

The DOL has also increased the $107,432 annual compensation threshold for the “highly compensated employee” (HCE) exemption. To qualify for the HCE exemption under the Final Rule, employees must earn annual compensation of $132,964 beginning on July 1, 2024, and $151,164 beginning on January 1, 2025. This HCE threshold will also be subject to automatic three-year updates starting July 1, 2027. Employers may use nondiscretionary bonuses and incentive payments earned during a 52-week period to satisfy the HCE total annual compensation threshold, but such bonuses and incentive payments cannot be used to satisfy the weekly standard salary level portion of the HCE test.

Legal challenges to the DOL’s announcement are anticipated; however, employers should not rely on court intervention prior to the July 1 implementation date. PAA is NOT recommending that dealers change their current pay plans at this time; however, dealers should be educated on how the final rule will impact pay plans if implemented and effective July 1, 2024.

Questions regarding overtime rules and exemptions continue to be common. Generally, an employer who requires or permits an employee to work overtime is required to pay the employee premium pay for such overtime work. Unless specifically exempted, employes covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rate of pay.

Frequently asked questions and answers are available online at: https://www.dol.gov/agencies/whd/overtime/rulemaking/faqs

Overtime Exemptions

An employee must meet one of the following exemptions regarding primary job duties, and be paid on a salary basis of at least $684 a week/$35,568 annually ($844 per week/$43,888 beginning July 1, 2024) to be exempt from overtime, unless otherwise noted:

1. Administrative Employee Exemption:

Engage in office or non-manual labor directly related to the management or general business operations of the dealership or its customers; and

use discretion and independent judgment regarding matters of significance.

Activities related to dealership management or general business operations include: operations financing, accounting, budgeting, auditing, insurance, purchasing procurement, advertising, marketing, safety/health, personal management, computer, internet and database administration, legal and regulatory compliance, etc.

This exemption typically applies to:

·                dealership assistant departmental managers

·                office managers

·                human resource personnel

This exemption typically does not apply to:

·                clerks

·                lot boys

·                cashiers

·                secretaries

·                those whose main duties involve bookkeeping, payroll preparation, sending out monthly written job descriptions to ensure they involve the use of discretion and independent judgment regarding matters of significance. An employee who simply applies protocols or provisions from a manual on a case-by-case basis is not exempt.

·                

2. Executive Employee Exemption:

Manage an enterprise (i.e., dealership), or a recognized department of an enterprise;

regularly direct the work of two or more employees; and have the authority to hire or fire employees (or their recommendations as to hiring or firing employees are given great weight).

This often applies to dealers, dealership department managers and shop foremen.

3. Professional Employee Exemption:

Perform work requiring advanced knowledge in a field of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction.

This typically applies to in-house dealership attorneys and accountants, but not accounting clerks or bookkeepers.

Highly Compensated Employee Exemption

Performs office or non-manual work and is paid a total annual compensation of $107,432 ($132,964 beginning on July 1, 2024); and

regularly performs at least one of the duties of an exempt executive, administrative or professional employee.

Additional Automotive Overtime Exemptions

The following three employee types must spend at least 50% of their time performing their specified duties to be exempt from overtime. These exemptions do not have a salary requirement and will not be impacted by the salary increases.

Salespeople make sales or obtain orders/contracts for the sale of automobiles, trailers or trucks. Work performed incidental to and in conjunction with a salesperson’s sales or solicitations (i.e., deliveries and collections) fall within this exemption.

Parts department workers order, stock, pull and sell parts. Parts delivery people do not qualify for this exemption.

Technicians perform skilled mechanical work, such as service, reconditioning and body shop mechanics, which includes, but is not limited to, replacing mufflers, replacing brake shoes, doing tune-ups, etc. Activities not considered mechanical are painting, cleaning, polishing, tire changing and lubrication.

Dealership Service Advisors fall within the “salesmen, partsmen, and mechanics” overtime pay exemption under the federal Fair Labor Standards Act. A 2018 decision by the Supreme Court upheld more than 40 years of consistent interpretation by the courts and the U.S. Department of Labor on this issue.

Commissioned Employees

Commissioned employees are compensated by commission for either sales made or services performed.

The employee’s regular rate of pay must exceed 150% of the applicable minimum hourly rate; and

More than half of the employee’s compensation for a period not less than one month must derive from commissions on goods or services.

Recordkeeping Requirements

Under the Fair Labor Standards Act (FLSA), wage and hour records must be kept for every employee other than management personnel. It is also recommended that detailed job descriptions and written pay plans be maintained for all employees.

The following records must be kept for employees entitled to both minimum wage and overtime:

1.      Full name and employee symbol or number identifier used on any records;

2.      Social security number;

3.      Home address (including zip code);

4.      Date of birth if under 19 years of age;

5.      Sex and occupation;

6.      Time and day on which the employee’s workweek begins;

7.      Regular hourly rate of pay and basis on which wages are paid;

8.      Hours worked each workday and total hours worked each workweek;

9.      Total daily or weekly straight-time earnings or wages;

10.  Total weekly overtime compensation;

11.  Dates, amounts, and nature of additions and deductions to wages;

12.  Total wages paid each pay period; and

13.  Date of payment and the pay period covered by the payment.

See NADA’s A Dealer Guide to Federal Wage-Hour Law and Equal Pay Act for more information on wage/hour recordkeeping.