New Federal Regulation on the Horizon Could Make More Employees Eligible for Overtime

The United States Department of Labor has announced plans to update the Fair Labor Standards Act regulations that set a salary threshold below which employees must be paid overtime.  If this announcement sounds familiar, you are right; in 2016, the Department of Labor finalized a rule that would have required employers to pay overtime to salaried employees unless the employee made more than $913.00 per week or over $47,476.00 per year. However, the Obama-era increase never went into effect.  It was blocked in November 2016 by a Texas federal court and is currently on appeal in the 5th Circuit. 

Under the FLSA, employees must be paid at least 1.5 times their regular rate for any hours worked beyond 40 in a week, unless they are properly classified as exempt. Among other requirements, the FLSA’s administrative, executive and professional (white-collar) exemptions set a minimum salary that employees must earn.  The current rule requires that salaried employees who are managers or those with certain “specialized skills”-such as a professional degree or training in a specific field, such as medicine-are exempt from the ability to earn overtime pay if they make more than $455.00 per week or over $23,660.00 per year.  However, the Department of Labor has issued a Notice of Proposed Rulemaking, meaning they plan to develop a new rule regarding overtime pay.  Specifically, the DOL plans to reevaluate the salary level for employees who are counted as “exempt” or unable to earn overtime pay. 

The new rule could be announced as early as next month and although it is unclear exactly how the new rule will affect the salary threshold, employers should contemplate that raising the salary threshold could widen the pool of salaried workers who are eligible for overtime pay to include some employees classified as:

            Executives-like project managers and VPs.
            Professionals-such as licensed architects and engineers.
            Administrative Employees-like accountants and marketers.

Bottom line: if you employ an individual who has previously been considered exempt from earning overtime pay, if the individual earns less than the salary threshold to be issued this year, then the employee may now be entitled to overtime.

Although the Department of Labor has not announced specifics, employers can prepare for the upcoming changes now.  Employers should visit their employees’ current salary levels and ensure compliance with the federal rules.  Additionally, employers should identify any employees who are classified as exempt and consider increasing salaries of those executive, administrative, and professional employees who may become eligible for overtime once the new rule takes effect.  The costs of increasing some salaries may be less expensive than incurring the overtime costs.  Similarly, should the salary level rise and make most of your team non-exempt, consider hiring more employees to spread the work around and avoid having fewer employees put in overtime hours. 

No matter when the Department of Labor announces its new regulations, we will update you with the changes and explain what they might mean for you.
By: Betsy Huffman