News & Announcements
Proposed New Rule to Make More Employees Qualify For Overtime Pay
The Department of Labor (“DOL”) recently announced a proposed rule that would convert more than one million U.S. employees from exempt to non-exempt employees, thus making them eligible for overtime pay.
What is the Current Law?
The Fair Labor Standards Act (“FLSA”) requires that employees who work more than 40 hours per week must be paid overtime unless they qualify for an exemption by meeting each of the following three tests:
- Salary Basis Test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
- Salary Level Test: The amount of salary paid must meet a minimum specified amount; and
- Duties Test: The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.
Currently, employees with a salary of at least $455 per week ($23,660 annually) satisfy the salary level test. This salary level, however, was set 15 years ago. In 2016, the Obama administration proposed to increase the salary level to $955 per week ($47,476 annually), but that attempt was blocked by a judge in 2017 in a decision that remains on appeal.
The DOL's regulations also contain an exemption for “highly-compensated” employees who are currently defined as being paid at least $100,000 annually.
Key Points of the Proposed New Rule
- The proposed rule would update the salary level to reflect growth in wages and salaries over the past 15 years. The threshold would increase from $455 per week to $679 per week (equivalent to $35,308 per year).
- The new rule would allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level. Catch-up payments would be permitted within one pay period after the end of each 52-week period to bring an employee’s compensation up to the required level.
- The proposed rule also increases the threshold for defining highly compensated employees from $100,000 to $147,414 per year. Catch-up payments would be allowed within one month after the end of the 52-week period to bring an employee’s compensation up to the required level.
- The DOL also proposed periodic review to update the salary thresholds through new rulemaking every four years (as opposed to the automatic increase proposed by the Obama administration).
If finalized as proposed, the DOL estimates that approximately 1.1 million currently exempt U.S. employees would, without some intervening action by their employers, become nonexempt, thus qualifying for overtime pay.
The DOL is not proposing any change to the duties test.
Comment on the Proposed Rule
The Department encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. Comments must be submitted by 11:59 pm 60 days from the Federal Register publication in order to be considered.
As of the writing of this article, however, the proposed rule has been submitted to the Office of the Federal Register for publication, but has not yet been published to the federal register.
Legal challenges are expected from both business groups concerned about the increase to payroll costs and by worker advocates who say the rule does not go far enough to expand overtime pay. That being said, employers may want to (re-)start evaluating job positions and compensation to determine whether they should increase salaries to the minimum level to avoid the possibility of an overtime obligation or convert currently exempt employees to non-exempt status.