Ivo is a partner in Obermayer’s Labor Relations & Employment Law Department. He focuses his practice on representing employers, including advising companies on how to handle employee issues, and defending employee claims...Read More by Author
The “Threshold Issue” – Will the Federal Overtime Rule Change (Again)?
This fall, employers may be faced with tough choices about how to handle overtime pay – at least, if the US Department of Labor (“DOL”) has its way. Today, the DOL announced a notice of proposed rulemaking that would make it harder for employers to exempt certain workers from time-and-a-half overtime pay for working over 40 hours per week. It does this by raising the monetary threshold, under which most employees must be paid overtime, from the current level of $35,568 per year to $55,068 per year.
The Fair Labor Standards Act (“FLSA”) requires employees to be paid overtime unless their employer can demonstrate that an exemption applies. The most common exemptions apply to salaried workers, earning above a certain amount, who work in a “bona fide executive, administrative, or professional capacity.” To rely on these exemptions (commonly referred to as the “white collar exemptions”) employers are often faced with the challenging task of determining whether the employee’s “primary duty” falls into one or more exempt categories. The new rule, if passed, would take away some employer discretion, effectively mandating overtime pay for employees making less than the new salary threshold—regardless of their day-to-day responsibilities.
This new proposed rule is similar to a 2016 proposal (summarized by HR Legalist here) that would have bumped the overtime threshold to $47,476 per year—effectively mandating overtime for millions of workers who were not previously eligible. The proposal ended up being blocked by the courts, eventually to be replaced by a more modest increase that went into effect in January 2020. Like the 2016 proposal, this new proposed rule includes an automatic update of the salary threshold every three years, based on weekly earnings data, and would also increase the salary threshold for the Highly Compensated Employee (“HCE”) exemption—all while keeping the duties tests unchanged.
Conscious of the fate of its 2016 proposal, the DOL pegged the new proposed salary level to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (the South)—lower than the 2016 calculation based on the 40th percentile of that same region. However, the proposal is still expected to be challenged by business groups and others in court. The rule must first proceed through a 60-day comment period, after which the DOL could make changes before issuing a final rule.
If the overtime rule is updated, employers will be faced with difficult choices, such as increasing salaries to stay above the new threshold, tracking and restricting overtime hours for newly eligible employees, or reorganizing or reallocating job duties. HR Legalist will continue to monitor this proposal as it proceeds through the rulemaking process. For now—as always—employers should keep in mind that regardless of the amount of the salary threshold, the duties tests must always be met to classify an employee as exempt.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.