By: Elaina Smiley, Employment Law Chair
On March 7, the U.S. Department of Labor (DOL) announced proposed changes to the Fair Labor Standards Act (FLSA) regulations that will likely make approximately 1 million workers eligible for overtime pay.
Under the FLSA, employers must pay workers time-and-a-half for hours worked in excess of 40 hours in a work week. The FLSA includes some exemptions to the overtime rules, intended to exclude certain “white-collar” workers from the overtime requirements. Companies do not have to pay an employee overtime wages as long as the worker passes both the salary test and the duties test to meet the FLSA exemptions from overtime pay.
The rule would increase the salary threshold that an employee performing executive, administrative, or professional duties must be paid in order to be exempt from payment of overtime for hours worked in excess of 40 per week. Currently, employees performing duties in a white collar exemption category that make $455 per week ($23,660 annually) or less must be paid an overtime wage, whereas the new rule would make the required wage of $679 per week ($35,308 annually).
The rule, if it becomes final, will go into effect on January 1, 2020. It is expected to be published in the Federal Register on or about March 12 and include a 60-day period for the public to submit comments. The DOL already received public input in six nationwide listening sessions, as well as 200,000 comments after a 2017 Request for Information while it was developing the proposal.
The nearly unanimous public opinion, according to the DOL, was that the overtime threshold needed to be updated from the current level established in 2004. The Obama administration proposed a rule in 2016 that would have doubled the salary threshold and set up automatic adjustments to it, but a U.S. District Court found the rule unlawful. The new proposal, however, would set up periodic reviews to determine if the salary threshold increases are needed.
Additionally, the rule would increase the compensation requirement for someone to be classified as a highly compensated employee (HCE) – and therefore exempt from overtime wages – from $100,000 to $147,414, which is equivalent to the 90th percentile earnings of full-time salaried workers, projected to January 1, 2020. Along with the income, HCEs must also have primary duties that include office work or non-manual labor, and they customarily and regularly perform duties of an exempt executive, administrative, or professional employee.
Employers should carefully review their current exempt employees’ compensation structure to determine which workers may be eligible for overtime wages under the new regulations. Although the changes are not effective until next year, companies should monitor those employees’ work hours now to determine the most cost-effective way to comply with the new rules. In some cases, it may be easier to simply raise the workers’ salaries to the threshold, assuming their job functions meet the FLSA duties test. In other cases, employers may want to convert the employee to an hourly rate and pay overtime for hours worked in excess of forty hours per week and implement rules to limit excessive overtime.
This material is for informational purposes only. It is not and should not be solely relied on as legal advice in dealing with any specific situation.