On July 6, 2015, the Department of Labor (“DOL”) proposed a revision to the “white collar” overtime exemption rule. As explained by Littler when it testified before the House Subcommittee, “the proposed white collar exemptions are unprecedented in the [Federal Labor Standards Act’s] 77-year history.” Even after this week's hearing, it is unclear whether the rule will be implemented in its current version or whether additional changes will be made. The proposed rule has been published for more than 60 days and therefore DOL has authority to move forward to implement the rule. If implemented in 2016, the minimum salary for overtime exemption would jump from $23,660 a year to $50,440.
The overtime exemption rule is applicable to executive, administrative, professional, computer-related occupation employees, and other narrowly defined personnel. Under the current rule, employees falling within the above-mentioned category are exempt from overtime pay if their salary is above $455 per week. This proposed rule change, effectively increasing the salary to $970 per week, has the potential to impact numerous international corporations who rely on employees from their offices abroad to fill critical roles within U.S. offices.
Many employers fill critical roles via the use of numerous non-immigrant visas, which may include the H-1B, L-1, and E-1/E-2 visa categories. The categories that will likely be impacted are the L-1 and E-1/E-2 visas.
The L-1 visa, allows multi-national corporations to transfers employees from a related foreign entity into the U.S. if these employees will be employed as Executive/Managers (L-1A) or in positions that required specialized or advanced knowledge (L-1B). The E-1/E-2 visa, allows corporations that are owned by nationals of a treaty country to bring over executive, supervisory and essential employees.
Although the overtime exemption is not likely to impact the higher level executive or managers transferred under the L-1A or E-1/E-2 visa categories, it may impact those employees being transferred under the L-1B category or as E-1/E-2 essential employees. Many of the L-1B/E-1/E-2 visa applicants are in the computer or engineering fields, originating from countries, such as India, where the base pay is significantly lower than that of their counterparts in the United States.
Both the L-1B and E-1/E-2 visa categories permit the employers the option of either maintaining the transferee on foreign payroll or switching them to U.S. payroll. The problem likely will arise with employees who may be earning a substantial salary, by local standards, however, when transferred to the U.S., that pay may not translate to an amount that exceeds the proposed new minimum salary. If the proposed rule changes are adopted, transferees earning a salary that is at or below the proposed new minimum salary will be entitled to overtime pay.
In summary, the new rule may be particularly problematic and difficult to manage for employers transferring employees through L-1B/E-1/E-2 visas on short-term projects or on an intermittent basis. If the new rule is adopted, the employer will be faced with multiple decisions when transferring employees to work in the U.S. Specifically, the employer will need to decide 1) whether to increase the employee’s salary above the minimum salary permanently; 2) whether to increase the salary only while the employee is physically working in the U.S.; or 4) whether to manage the employee’s payroll under two different payrolls, i.e., the foreign and the U.S. payroll.
Accordingly, foreign employers facing such dilemmas should consult with knowledgeable counsel.