DOL ISSUES NEW OVERTIME RULE

Posted by Attorney David McClurg in Employer-Employee Relationship, Human Resources, Labor Relations / Comments

On March 7th, 2019, the U.S. Department of Labor (DOL) unveiled a long-awaited replacement to an Obama era rule (blocked by a federal court in November, 2016) that would have increased the salary level required for exemption from federal overtime regulations from $455/week ($23,660/year) to $913/week (over $47,000/year), and added over 4 million U.S. workers to the ranks of those eligible for overtime pay. Under the proposed replacement rule, the salary level requirement would still increase, but only to $679/week ($35,300/year), so that workers making less than that amount would automatically be eligible for time-and-a-half pay for all hours worked in excess of 40 per week – even if they are paid on a salary basis. The DOL estimates that this change would result in making an additional 1 million workers eligible for overtime.

The DOL used the same methodology to set the proposed new salary level test that was used the last time the test was modified during the George W. Bush administration. Under the new rule, the salary level test would not vary based on regional or other costs of living differences around the country as the Obama era rule had required. And unlike the earlier rule, this new proposal does not establish automatic, periodic increases of the salary threshold. Instead, public input has been requested on potential methods to update overtime requirements every 4 years. The DOL hopes that these modifications will avoid some of the legal challenges that led a federal court to bar implementation of the earlier rule.

Worker advocates are expected to argue, during the comment period on the proposed rule, that the DOL isn’t going far enough to expand overtime pay for lower wage workers. The DOL hopes to make the new rule. It appears that many employers will accept the proposed new salary level test as a reasonable compromise. However, if it becomes effective by January 1, 2020 as the DOL hopes, it is likely that the new overtime rule will still be the target of legal challenges by some business groups concerned about rising payroll costs.

AS always, employers should ensure that their exempt employees meet both the applicable salary level and white collar “duties” tests in order to justify their exempt classification. Employers should then determine which employees will be affected by the anticipated increase in the salary level test and consider whether or not it makes sense to raise affected employees’ salaries or reclassify them as non-exempt employees. If the anticipated January 1, 2020, effective date is achieved, employers may not have a great deal of time to adapt once the rules are finalized.