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Department of Labor releases proposed new rules for overtime threshold

March 11, 2019 at 8:34 pm

By Mark A. Stevens
Chief Marketing Officer

The Department of Labor has released a new proposed rule to increase the minimum salary that an employee must earn to be exempt from minimum wage and overtime under a white-collar exemption. It’s a move that’s been expected for years.

The proposed rule requires that salaried exempt executive, professionaladministrative, and computer employees must be paid at least $679 per week on a salary basis, an increase from the current minimum of $455 per week. The rule allows for non-discretionary bonuses and incentive payments to account for up to 10 percent of the minimum, so long as they are paid out on at least an annual basis; currently commissions and bonuses cannot be counted toward the minimum.

Under currently enforced law, employees with a salary below $455 per week ($23,660 annually) must be paid overtime if they work more than 40 hours per week. Workers making at least this salary level may be eligible for overtime based on their job duties. This salary level was set in 2004.

Th new DOL proposal would boost the proposed standard salary level to $679 per week (equivalent to $35,308 per year). That’s nearly a 50-percent increase. Above this salary level, eligibility for overtime varies based on job duties. The new mandate isn’t nearly as much as had been proposed by President Obama’s administration, which had proposed the minimum go to $47,476 in December 2016. A last-minute ruling in 2016 from a federal judge put that all on hold. This is the first time the DOL, under President Trump, has issued a new plan, albeit quite a reduction from the Obama proposal.

The DOL also proposes that highly compensated employees must be paid at least $147,414 per year to qualify as exempt. Of that amount, at least $679 per week must be paid on a salary or fee basis. According to The National Law Review, this has several caveats.

“The proposal would raise the annual total compensation threshold for the highly compensated employee exemption to $147,414 from the current $100,000 and allows employers to use nondiscretionary bonuses and other types of incentive compensation, such as commissions, to satisfy up to 10 percent of that salary level,” says NLR article published March 11. “The regulations also include a commitment to review and update the salary threshold periodically through issuing proposed regulations and allowing public comment. The proposed regulations leave unchanged the duties required to make employees exempt.”

The anticipated effective date for all the new rules is January 2020.

The Department of Labor intends to update these minimums every four years based on increases to the Consumer Price Index. These increases will not be automatic but will likely be done through notice and comment rulemaking, just as they are doing with this proposed rule.

Duties Test
There are no proposed changes to the duties tests for the various white-collar exemptions. Employers should be aware that paying someone a minimum salary does not necessarily mean they are properly classified as exempt. Each of the exemption types mentioned above has a corresponding duties test. If the duties test is not met by the employee, then they are non-exempt and entitled to minimum wage and overtime, regardless of the method or amount of pay. You can learn more in the HR Support Center by entering the word exempt into the search bar.

State Law
California and New York (and soon Washington) already have laws in place that make the minimum salary for exempt white collar employees higher than these proposed thresholds. As employers must follow the law that is more beneficial to employees, the new proposed federal minimums would not affect employers in these states.

What Happens Now

Just as the Obama administration proposal failed to be enacted, these new rules could also face hurdles to be implemented. According to the NLV, “the regulations are now subject to a 60-day comment period following publication in the Federal Register, which is expected next week. After the comment period closes, the DOL is likely to issue final regulations—a process that could take several months. The DOL has suggested it intends to publish a final rule before the 2020 presidential election cycle.”

While there is a stark difference between what was proposed by the previous administration, the DOL was expected to make the change. As this blog reported in February, given the rate of inflation since 2004, the last time a mandate was made, and the number the current Secretary of Labor suggested during his confirmation hearings, it was anticipated that the proposed rule would include a minimum salary for exempt employees between $30,000 and $35,000 annually. The new proposal for workers is actually slightly above the highest estimate.

The DOL notes that the change will “make more than a million more American workers eligible for overtime.”

A Fox Business Report notes that small-business owners have expected the change since Labor Secretary Alexander Acosta took office, but the article said they may not be happy about it. Karen Kerrigan, president of the advocacy group Small Business & Entrepreneurship Council, said small-business owners “generally do not like it when the federal government intervenes on wage issues.”

Still, Kerrigan said, the rules included a provision that owners would be happy with, providing for increases in the exemption threshold every four years via the rule-making process rather than automatic increases in the Obama plan.

What Will Not Change

The DOL also notes that the proposal will not changes overtime protections already in place for:

  • Police Officers
  • Fire Fighters
  • Paramedics
  • Nurses
  • Laborers including: non-management production-line employees
  • Non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers

While the proposal is still months away from being enacted, the National Law Review warns that employers should begin preparing for the change.

“The proposed changes to the overtime rules are a good reminder of the need for employers to ensure that their employees are properly classified and paid accordingly,” the NLV wrote. “Employees who satisfy the salary basis test are nonetheless non-exempt and entitled to overtime if they do not primarily perform exempt job duties. Additionally, many states have set higher minimum wage and overtime thresholds that employers must also follow. Employers must remain cognizant of all federal, state and local wage-and-hour laws.

Read more about the changes here:

• U.S. Department of Labor Announcement

National Law Review March 11 Article

• Fox Business News Report


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