New Overtime Rules Affect Insurance Industry

New Labor Department regulations hiking the threshold for overtime pay go into effect Dec. 1 and will impact the financial services industry, a leading employment lawyer said.

The Fair Labor Standards Act requires employers to pay overtime unless a salaried employee is paid $47,500 or more annually. The current salary threshold of $23,660 is outdated, the Obama administration argued in announcing the updated rule.

Employers argue the overtime changes should be phased in over a number of years. The DOL estimates the new rule will affect more than four million workers, and 19 percent of all insurance industry workers.

The difficult decisions will start with deciding whether to raise the $40,000-a-year employee’s salary by $8,000 so they become exempt, explained Don Phin, a California employment lawyer.

That decision will depend on how many additional hours the employee works, he added.

Phin is delivering a workshop Friday at the National Association of Independent Life Brokerage Agencies (NAILBA) annual conference in Dallas.

The insurance agency is certainly not the focus of the law, he noted.

“They’re worried about the Burger King manager who is putting in so many hours exempt that he’s actually making less than minimum wage,” Phin said.

But that doesn’t mean the industry isn’t affected in a significant way. Agencies will need to know the new rules on who is considered exempt because they are considered “administrative,” for example.

The insurance industry benefits from one change that came about via comments on the tentative rule. Regulators amended the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level.

The rule also Increases the minimum annual salary for exempt highly compensated employees from $100,000 to $134,004. All of the salary thresholds increase automatically every three years.

“If you did have some sloppy practices that you’re aware of, now if the time to clean them up,” Phin said. “Now is a good time for agencies to assess whether their people are really exempt employees.”

A lawsuit filed by 21 states in a federal district court in Texas seeks a preliminary injunction that would block the DOL’s regulation from taking effect.

They argue the new salary basis test, which also would index the amount for inflation every three years, exceeds the department’s legal authority.

The states’ arguments lack merit because the FLSA grants the Labor Department broad authority to set the contours of the act’s “white collar” exemption, Phin said.

“This is something that is squarely within the sights of the DOL regulation,” he said. “Because they’ve done it may times before, it would be disingenuous to say they couldn’t do it again.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.

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