The BOTTOM LINE on the New Proposed DOL Rules: What Overtime Exemptions Could CO$T Employers

It’s been fifteen years since the salary threshold for overtime eligibility was last set, but on March 7 the Department of Labor issued a proposal to raise the current level of $23,660 per year to $35,308. If enacted, the new overtime rule proposed last Thursday would reclassify an estimated 1.1 million workers currently exempt from federal overtime requirements and likely result in a pay increase for others over the new threshold.

If the DOL’s new overtime rule proposal sounds familiar, it’s because the department released a similar proposal in 2016 during the Obama Administration. Specifically, in May 2016, the DOL issued a series of finalized rules doubling the $455 minimum salary level to $913 a week (equivalent to $47,476 per year) and raising the total annual compensation required for the “highly compensated employee” exemption to $134,004. The Obama-era proposal also included automatic increases to the salary threshold every three years. The new minimum threshold was set to take effect on December 1, 2016, with the first automatic adjustment beginning on January 1, 2020. However, just days before the official roll out of the 2016 final rule, a federal judge in the U.S. District Court for the Eastern District of Texas declared it invalid and issued a preliminary injunction blocking the final rule from being implemented nationwide. Seeking to resolve the uncertainty that has lingered in the last two and a half years, the proposed rule that the DOL released on March 7 dials back many of the more controversial elements of the 2016 rule.

So what has and has not changed?

If adopted as proposed, the new rule would:

• Boost the minimum salary level required for an employee to be exempt from overtime wages from $455 to $679 per week, a more palatable figure for employers than the $913 weekly salary proposed in 2016;
• The exemption threshold for “highly compensated employees” would jump from $100,000 to $147,414 per year, a salary hike notably higher than the level proposed under the Obama Administration’s proposed rule;
• Permit employers to use nondiscretionary bonuses and incentive payments – e.g., commissions – that are paid annually or more frequently, to satisfy up to 10% of the standard salary level;
• Commit the DOL to consider an update to the salary threshold every four years through the notice-and-comment rulemaking process, rather than require automatic adjustments every three years;
• Leave the job duties test unmodified; and,
• Maintain the same overtime protections for: police officers, firefighters, paramedics, nurses, and laborers including: non-management production-line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers.

The DOL’s recent proposal is not an immediate call for employers to restructure employee compensation. In fact, the new overtime rule would have nominal effect on employers in states with higher salary minimums, such as California and New York. The same is true for those employers who made changes to employees’ compensation structure in anticipation of the 2016 $913 per week threshold. For those outside of either camp, fear not, Thursday’s announcement was merely a notice of proposed rulemaking. There is still a 60-day comment period to follow and modifications can and may be made before the final rule is published. That said, with far less opposition-triggering aspects, the DOL estimates that the new overtime regulations could take effect as soon as January 2020. While the pending presidential election could certainly leave the overtime rule in a state of flux, employers should use the time to prepare if the current proposal is enacted, for example:

1. Identify current exempt employees who are paid less than $35,308 annually and determine how many hours per week employees in this compensation range work.
2. Evaluate whether it makes better financial sense to raise certain employee salaries to the new threshold or to simply make the employee eligible for overtime should the new rules take effect.

Although the duties test remains unchanged under the proposed rule, reexamine current job descriptions and duties and consider if exempt tasks should be reassigned or maintained if the particular employee loses his/her exempt status.