12/20/2016: “Exempt” is Over – A Review of the New Regulations for “Overtime-Ineligible” Employees

As featured in Behind the Wheel, a quarterly publication of the Maryland Motor Truck Association.


Written by Franklin & Prokopik attorneys Albert B. Randall, Jr. and  Matthew George Kuspa

Editor’s note: On November 22, 2016, just as this magazine issue was being printed, a federal judge issued a preliminary injunction that temporarily halts implementation of the overtime rule discussed below. The injunction, coupled with the outcome of the U.S. elections, places the rule in doubt. Until such time as the injunction is lifted, the December 1 implementation date is temporarily suspended. 

The U.S. Department of Labor (“DOL”) has issued new overtime regulations which are currently scheduled to go into effect on December 1, 2016.  In Maryland alone, an estimated 79,630 currently nonexempt employees (1.9% of the working population) will become entitled to overtime under the new regulations.

Under the old regulations, executive, administrative, or professional employees (EAPs) were generally “exempt” from overtime if they performed certain job duties (the “duties test”) and were paid a salary (the “salary basis” test) of not less than $455 per week (the “salary level” test).  Highly compensated employees (HCEs) were exempt from overtime if they were paid at least $100,000 and passed a “minimal duties” test, meaning that they customarily and regularly performed at least one of the exempt duties of an exempt EAP.

Under the new regulations, the DOL will now refer to nonexempt employees as “overtime-protected” or “overtime-eligible,” and exempt employees will be referred to as “overtime ineligible” or “not overtime-protected.”  The new regulations do not make any changes to the duties tests for either EAPs or HCEs, however, the salary levels will be raised substantially for both overtime-ineligible EAPs and HCEs.  Finally, in meeting the new standard salary level for overtime-ineligible EAPs, employers will be allowed to include nondiscretionary bonuses and make “catch-up” payments as needed.

Raising the Salary Levels

The DOL has set the new “standard salary level” for EAPs at the 40th percentile of full-time salaried workers in the lowest-wage Census Region in the United States.  Based on data from 2015, the standard salary level will increase from $455 per week to $913 per week (or from $23,660 per year to $47,476 per year), effective December 1, 2016.

The salary level for HCEs will also change, and will now be set to the 90th percentile of full-time salaried workers nationally.  Based on census data from 2015, the new salary level for HCEs will be $134,004, also effective December 1, 2016.

Part of the purpose of tagging the salary levels to census data is to allow for “automatic updates” to the salary levels for EAPs and HCEs.  The first update to the salary levels will take effect on January 1, 2020, and salary levels will be updated every three years thereafter.  The DOL will calculate the new salary levels based on data from the second quarter of the year preceding the update, and will post the new salary levels at least 150 days prior to each update (or August 4th of the preceding year).

Bonuses and “Catch-Up” Payments

Employers are now permitted to count nondiscretionary bonuses, incentives, and commissions toward up to 10% of the standard salary level for overtime-ineligible EAPs.  Examples of such “nondiscretionary” payments include bonuses that are announced to employees to encourage them to work more steadily, rapidly, or efficiently (in other words, bonuses tied to productivity or profitability), and bonuses designed to encourage employees to remain with the employer.  Examples of “discretionary” bonuses include unannounced bonuses or spontaneous rewards for specific acts.

In order to be counted toward the standard salary level, nondiscretionary bonuses must be paid at least quarterly.  In some situations, the bonuses may be less than expected and an EAP’s weekly salary plus bonuses for the quarter will not equal or exceed one-quarter of the yearly salary level.  In such a case, the DOL will permit employers to make a “catch-up” payment no later than the pay period after the end of the quarter to raise the employee’s salary to the standard salary level.

Motor Carrier Exemption

Section 13(b)(1) of the Fair Labor Standards Act, also known as the “motor carrier exemption,” continues to provide an overtime exemption for employees regulated by the Department of Transportation (DOT).  Drivers who transport goods across state lines and certain other employees whose duties may affect the safety of motor vehicles in interstate commerce generally fall within DOT jurisdiction and are not entitled to overtime under FLSA, even if they also work on intrastate routes.  The new regulations do not affect the motor carrier exemption.  Under Maryland law, state overtime law does not apply to employees regulated by the Department of Transportation.

Options for Employers

Employers may increase the salary of newly overtime-eligible employees to keep the employee exempt from overtime.  This may be a good option for employees who have salaries slightly under the new exempt salary level.

Employers may also choose to keep salaried employees that will now be overtime-eligible at the same rate of pay and pay overtime as needed.  There is no requirement that employers convert employees from salaried to hourly in order to pay overtime.  Employers may instead calculate an employee’s rate of pay by dividing the total pay for the employee in any workweek by the total number of hours actually worked, and use that rate to pay the salaried employee overtime.

Preparing for the Change

In preparing for the change on December 1, 2016, employers should consider:

  • Identifying employees who are at or near the new standard salary level,
  • Preparing early by having salaried employees who are newly “overtime-eligible” track their time in anticipation of the change,
  • Developing policies for tracking time for employees who work remotely and/or are issued a company computer or cell phone, and
  • Evaluating bonuses to determine whether they are “discretionary” or “nondiscretionary” and reviewing and adjusting their compensation schemes and policies accordingly.

Private employers may also refer to guidance issued by the DOL on the final overtime rule (available at https://www.dol.gov/).  Whether employees are “exempt,” “overtime ineligible,” or “not overtime-protected,” employers will have to pay much closer attention to employee compensation and overtime work as the regulations continue to update.

What does this mean for employers?  For now, the overtime rule will not take effect as planned on December 1, 2016 but it could still be implemented at some point in the future. Employers may continue to follow the existing overtime regulations until a final decision is reached, but should be aware that there is a possibility that the rule could be enforced retroactively, and should carefully track the hours of employees who will be affected by the changes.  Those employers who have already reclassified employees have the option of proceeding forward with implementation of the new rules.

12/8/2016: Redefining “Retaliation”: How to Modify Post-Injury Drug-Testing and Reporting Policies as OSHA Expands Its Reach

As seen published on page 18 of the Oct/Nov issue of CLM Workers’ Compensation magazine – http://theclm.wcmagazine.epubxp.com/i/757431-oct-nov-2016

Written by Franklin & Prokopik attorneys Albert B. Randall, Jr. and  Matthew George Kuspa

The Occupational Safety and Health Administration (“OSHA”) has issued new regulations for reporting workplace injuries which are currently scheduled to go into effect on December 1, 2016.  The apparent overall purpose of the new regulations is to promote the prompt, detailed, and accurate reporting of workplace injuries in order to eventually improve the ability to identify and mitigate workplace hazards and prevent workplace injuries and illnesses.  To that end, the regulations modernize injury data collection by requiring employers to report work-related injuries and illnesses electronically.

The new regulations also prohibit employers from retaliating against employees for reporting work-related injuries or illnesses.  A prohibition on retaliation already existed under the Occupational Safety and Health Act (the “Act”), however, OSHA’s new rule also incorporates this existing statutory prohibition on retaliation into an updated regulation.  In doing so, OSHA has expanded its reach to encompass almost any employment practice, policy, or procedure, whether active or passive, that can be construed as deterring employees from reporting injuries and illnesses.

OSHA has also taken on a new role as an enforcer without requiring employees to report violations.  In OSHA’s view, these sweeping changes are justified to ensure the accuracy of employers’ records and reports, and further the overall goals of the Act.  As a practical matter, in the context of workers’ compensation claims, claims professionals will need to understand the effect of the updated legal requirements for employers in order to effectively and efficiently resolve claims.

Modernizing Injury Data Collection

Under previously existing regulations, employers were required to complete an individual OSHA Form 301 “Injury and Illness Incident Report” for each injury.  Prior to the rule change, submissions could be made by paper, and employers were allowed to use an “equivalent form” to Form 301, as long as the form contained the same information as required by Form 301.  (For example, employers could often submit a workers’ compensation “report of injury” or other corresponding form to OSHA in lieu of a Form 301.)  Employers were also required to maintain a Form 300 “Log of Work-Related Injuries and Illnesses,” and submit an annual Form 300A “Summary of Work-Related Injuries and Illnesses.”

Under the new regulations, all information must be electronically submitted to OSHA.  Establishments with 20–249 employees must submit certain injury data from OSHA Form 300A annually by March 2nd of the following year, and employers with 250 or more employers must submit certain injury data from all three forms annually by March 2nd of the following year.  (These requirements will “phase-in” by 2019, with grace periods in 2017 and 2018.)  All establishments, regardless of size, must submit any requested information from any forms upon request by OSHA.

OSHA intends to publicly disclose the information obtained from these forms on its website.  This will allow the public to review information from each establishment and evaluate workplace safety and health at each location, and will doubtless be used for a variety of purposes.  (No personally identifiable information, e.g., employee names, treating physicians, etc., will be collected or posted on the site.)

With regard to workers’ compensation claims, the electronic submission of injury data will undoubtedly result in duplicative paperwork and, accordingly, inaccuracies between records.  In comments to the final rule, OSHA admitted that “because workers’ compensation forms are for a specific purpose and can vary by state,” they may not fit OSHA’s reporting requirements.  Since each establishment will develop its own system for recording workers’ compensation reports of injury in conjunction with  OSHA’s new requirement for electronic reporting, employers and claims professionals will have to work together to ensure the accuracy of the record of injury.

Preventing Retaliation Against Employees

As noted above, the Occupational Safety and Health Act prohibits retaliation against employees who file complaints with OSHA.  The new rule does not change the substantive obligations of employers, but rather gives OSHA a new method of enforcement.  Previously, for OSHA to act, it had to rely on a complaint from an employee prior to bringing suit.  Under the new rules, OSHA may now bring suit against an employer even if the employee did not file a complaint.  OSHA contends that this method of enforcement helps to ensure the accuracy of employer injury and illness logs.

“Retaliation” is any materially “adverse action,” that is, any action which would deter a reasonable employee from reporting a work-related illness or injury.  Retaliation is usually thought of in the context of disciplinary policies.  According to OSHA, improper disciplinary policies are those which discipline (or threaten to discipline) an employee in response to a reportable injury (or a claim for workers’ compensation) when no legitimate workplace safety rule has been violated.  Examples of such discipline can include termination, suspension, reduction in pay, reassignment to a less desirable position, work restrictions, harassment, progressive disciplinary policies, and automatic poor performance evaluations for injuries.

Employers also may not engage in “pretextual disciplinary actions” against employees, including selectively disciplining an employee with a reportable injury for violating a safety rule while not disciplining other employees who violated the same rule and did not report injuries; or selectively disciplining employees for violations of vague work rules to “work carefully” or “maintain situational awareness.”  Employers should review and revise workplace safety rules to require or prohibit specific conduct.

Under the new regulations, employers must inform employees of their right to report work-related injuries and illnesses free from retaliation.  Employers can comply with this requirement by posting OSHA’s free workplace poster from April 2015 (available at http://www.osha.gov/).

In furtherance of this prohibition on retaliation, employers must also develop “reasonable” procedures for reporting work-related injuries or illnesses, eliminate blanket post-injury drug testing policies, and review and revise employee incentive programs.

Developing “Reasonable” Reporting Procedures

Under the new rules, employers are now required to develop reasonable procedures that do not deter or discourage employees from reporting work-related injuries or illnesses.  According to OSHA, examples of unreasonable reporting procedures include reporting policies with several steps or difficult requirements that deter employees from reporting injuries (or which are otherwise “unduly burdensome”), and rigid “prompt-reporting requirements” that result in employee discipline for late reporting.

OSHA appears to take particular issue with prompt-reporting policies, citing examples of injuries and illnesses which develop over time, have latency periods, or do not initially appear to be serious enough to be recordable.  In one case, an individual developed pain due to work-related repetitive motions beginning one week earlier.  The employee received a final warning for failing to timely report an injury.  OSHA found this policy unreasonable because it did not “allow for reporting within a reasonable time after an employee realizes that he or she suffered a work-related injury or illness.”

In order to comply with the new regulations, employers will need to revise reporting procedures to be simple and easy for employees to follow, and to allow employees to report injuries within a “reasonable” period of time after discovering that an injury has actually occurred.  As a recent example, in July 2016, OSHA settled a case that was brought against U.S. Steel for maintaining an immediate reporting policy.  As part of the settlement, the employer adopted a reporting policy that required employees to report injuries “as soon as reasonably possible, but in no event later than leaving the plant or 8 hours after becoming aware of the injury or illness, whichever is earlier.”

Eliminating Blanket Post-Injury Drug-Testing Policies

Under the new regulations, OSHA considers blanket post-injury drug testing to be “a form of adverse action against employees who report injuries or illnesses.”  Going forward, employers should “limit post-incident testing to situations in which employee drug use is likely to have contributed to the incident, and for which the drug test can accurately identify impairment caused by drug use.”

OSHA contends that drug tests should only be conducted if there is a “reasonable possibility that drug use by the reporting employee was a contributing factor to the reported injury or illness.”  As examples, OSHA states that it would likely not be reasonable to drug test in the event of “a bee sting, a repetitive strain injury, or an injury caused by a lack of machine guarding or a machine or tool malfunction.”

Issues, of course, will arise when the circumstances surrounding the accident are unclear.  For example, in the above OSHA example of “an injury caused by a lack of machine guarding,” would it be “reasonable” to drug test an employee if it was unclear whether the employee was responsible for removing the safety guard?  Did drug use “likely” contribute to the incident?  In the absence of clear guidance on the issue, it’s likely that some employers will choose not to drug test employees in situations where drug use was in fact a contributing factor, but impairment could not be detected.

Employers should also refrain from drug testing “in a way that may be perceived as punitive or embarrassing to the employee,” as this is also likely to deter reporting.  What this means specifically is anyone’s guess, as the act of drug testing alone could be considered by many to be embarrassing.

Reviewing and Revising Employee Incentive Programs

OSHA has also raised concerns about the “retaliatory nature” of employee incentive programs, which “have the potential to discourage reporting of work-related injuries and illnesses without improving workplace safety.”  Examples of inappropriate policies include:

  • Periodic prize drawings for employees who did not report injuries,
  • rate-based incentives rewarding workers for low rates of injuries, and
  • incentive programs based on teams of workers remaining injury-free, leading to peer pressure on employees not to report injuries.

The new regulation does not constitute a blanket ban on employee safety incentive programs, but “programs must be structured in such a way as to encourage safety in the workplace without discouraging the reporting of injuries and illnesses.”  OSHA encourages employers to develop safety incentive programs which “promote worker participation in safety-related activities.”  For example, safety incentive programs may reward employees for correctly following legitimate safety rules, identifying hazards, or participating in investigations of incidents, or other incentives as listed in OSHA’s Voluntary Protection Program guidance materials.


Perhaps in conjunction with OSHA’s new role in enforcing violations, the penalties for violations have recently increased on August 2, 2016.  The current maximum penalty for “Serious,” “Other-Than-Serious,” and “Posting Requirements” violations has now increased to $12,741 per violation.  Failure to Abate violations have increased to a maximum of $12,741 per day beyond the abatement date, and “Willful or Repeated” violations may now garner a maximum penalty of $124,709 per violation.

Given the substantial changes to the definition of “retaliation,” employers should revise their policies to reflect the updated regulations.  Meanwhile, claims professionals need to be cognizant of the updated employer requirements and work with employers to ensure that claims are reported timely and accurately, and that drug-testing and claims reporting are conducted in a lawful manner.

Albert B. Randall, Jr. is the President of Franklin & Prokopik, P.C., and can be reached at arandall@fandpnet.com.  Matthew George Kuspa is an associate with Franklin & Prokopik, P.C.,  and can be reached at mkuspa@fandpnet.com.