Editor's note: This information was valid as of its original publication date (above). On Sept. 24, 2019, the Department of Labor adopted its Final Overtime Rule. Read the article
- The U.S. Department of Labor has released the highly anticipated Notice of Proposed Rule Making to revise the federal Overtime Regulations
- The U.S. DOL’s Wage and Hour Division previously held public listening sessions on the federal “Overtime Rule”, focusing on salary threshold.
- The proposal would revise salary thresholds for the executive, administrative, and professional (white collar) exemptions from the Fair Labor Standards Act’s minimum wage and overtime requirements.
- Employers should continue to comply with existing federal overtime regulations, as well as applicable state requirements.
- This is an update to an article published Dec. 28, 2018 and a related article was published on Nov. 1, 2017.
The U.S. Department of Labor (DOL) recently has released a Notice of Proposed Rulemaking (NPRM) to revise the federal overtime regulations. The NPRM as well as additional resources have been posted on the U.S. DOL’s Wage and Hour Division (WHD) website here.
The proposal would increase the standard salary level to $679 per week (equivalent to $35,308 per year) from the current $455/week ($23,660 annually) originally set in 2004. Above this salary level, eligibility for overtime varies are based on job duties.
The proposal also includes:
- An increase to the total annual compensation requirement for "highly compensated employees" (HCE) from the currently enforced level of $100,000 to $147,414 per year.
- A commitment to periodic review to update the salary threshold requiring notice-and-comment rulemaking.
- Ability 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.
Notably there were no changes to the job duties tests nor was a provision for automatic adjustments to the salary threshold included. The proposal will be released in the federal register with an expected 60-day public comment period. A final rule is not expected until later in 2019.
The NPRM would seem to have incorporated feedback gathered during a series of public listening sessions held across the country. The sessions, held by the WHD, were intended to provide the DOL with public feedback as to how to best move forward with a new overtime proposal using a limited agenda of only four questions:
- What is the appropriate salary level (or range of salary levels) above which the overtime exemptions for bona fide executive, administrative, or professional employees may apply?
- What benefits and costs to employees and employers might accompany an increased salary level?
- What is the best methodology to determine an updated salary level?
- Should the DOL more regularly update the standard salary level and the total annual compensation for highly compensated employees?
The DOL estimates that 1 million workers may be effected by the proposal as compared to the estimated 4.2 million that would have been newly eligible for overtime pay under the Final Overtime Rule released in 2016 under the Obama Administration that remains enjoined in the courts.
How might employers be impacted?
An increase in salary thresholds under the overtime regulations may mean certain employers will need to assess their internal employee classifications. They may find the need to either transition some of their exempt employees to non-exempt status or alternatively increase salaries.
Transitioning employees from exempt to non-exempt status could increase overtime expenses, affect employee morale and/or turnover if such changes are perceived as demotions, change benefits, and require more time for recordkeeping. Such a change could result in the need to hire part-time workers or redistribute work to eliminate the potential for overtime situations.
Finally, employers could face litigation if employees whose classification changed and they feel they should have been non-exempt the entire time and are now due back-pay for overtime decide to file a claim.
An example of one of the drawbacks to employee reclassification – switching an employee from exempt to non-exempt status – was introduced at one of the listening sessions. A manager whose role was reclassified lost certain perks such as a flexible schedule and working from home, and viewed the switch as a demotion.
Other employers whose businesses required non-traditional work hours, such as restaurants and hotels or IT, had concerns about tracking and managing employees’ time to stay away from overtime situations.
The other option employers could opt for is an increase in the salaries of impacted employees, but with salaries going up there exists the possibility that budgetary constraints might force the business to downsize. Wage compression also could result, where employees who did not get a raise while others did find their salaries too close to those who work for them, creating dissatisfaction and potential morale issues.
Current federal overtime regulations still in effect
Employers should continue to comply with the current federal overtime regulations, and are cautioned to ensure compliance with applicable state overtime requirements that may incorporate salary levels that exceed the federal level.
Paychex will continue to monitor and communicate further developments as they occur.