DOL to Release Proposed Rulemaking on Overtime Regulations in March 2019
- The U.S. DOL’s WHD held public listening sessions on the federal “Overtime Rule,” focusing on salary threshold.
- In October 2018, taking into account public comments, the U.S. DOL released its Fall 2018 Regulatory Agenda, noting it will release a Notice of Proposed Rulemaking in March 2019 to begin the process of updating federal overtime regulations.
- The proposal would look to revise regulations governing the executive, administrative, and professional 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.
- A related article was published on Nov. 1, 2017.
The U.S. Department of Labor (DOL) is expected to address the federal overtime regulations with the release of a Notice of Proposed Rulemaking in the early part of 2019.
The Notice of Proposed Rulemaking is expected to incorporate feedback gathered during a series of public listening sessions held across the country. The sessions, held by the DOL’s Wage and Hour Division (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.
The rulemaking would revise the regulations that govern the executive, administrative, and professional exemptions from the Fair Labor Standards Act’s minimum wage and overtime requirements. The questions considered as part of the listening sessions were:
- 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?
Employers' objections to Final Overtime Rule
Many employers opposed the Final Overtime Rule released, but later enjoined, under the Obama administration, fearing a surge in labor costs and the need to reclassify workers classified as exempt and paid on a salary basis. If implemented, the Final Overtime Rule would have:
- Raised the salary threshold for the executive, administrative, and professional (EAP) white collar exemptions from $455/week to $913/week — or $47,476 for a worker who works the whole year.
- Raised the annual salary for the Highly Compensated Employee (HCE) exemption from $100,000 to $134,004.
- Created a mechanism for automatic updates to the salary threshold for the EAP white collar exemptions and HCE annual salary every three years, based on wage growth over time.
The DOL estimated that 4.2 million workers would have been newly eligible for overtime pay under the Final Overtime Rule released in 2016.
How might employers be impacted?
An increase in salary thresholds under the overtime regulations may mean many 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 seen 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.