March 21, 2019

DOL Proposes Updated Rule on Overtime

The Department of Labor (DOL) has proposed updating regulations that would govern which white-collar workers are eligible for overtime pay under the Fair Labor Standards Act (FLSA). The proposed rule modifies the overtime rules published by the Obama Administration in 2016, which were later declared invalid by the United States District Court for the Eastern District of Texas.

Background

Under the FLSA, certain white-collar employees are exempt from overtime pay protections if they pass the following tests:

  • The salary-level test stipulates that the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality of the work performed. The salary-level test sets a minimum specified amount the employee’s salary must meet or exceed.
  • The job-duties test notes that the employee’s job must primarily involve executive, administrative or professional duties, as defined by the regulations.

Highly compensated employees (HCEs) are also exempt if they earn at least a set amount (currently $100,000) in total annual compensation.

The Proposal

The new proposal would change which executive, administrative, professional, outside sales and computer employees are exempt from overtime by:

  • Raising the standard amount for the salary-b test for full-time salaried workers from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).
  • Allowing employers to satisfy up to 10 percent of the standard salary level through nondiscretionary bonuses, incentives, and/or commissions that are paid annually or more frequently.
  • Increasing the total annual compensation requirement needed to exempt an HCE from $100,000 to $147,414 annually.

The new proposed rule does not establish a mechanism to automatically update the salary for the salary-level test and makes no changes to the job-duties test.

Implications

If the proposed rule is made final with no changes, more than one million additional workers will be eligible for overtime, according to the DOL’s estimate.

The proposed changes are not as significant as the 2016 changes. Nevertheless, they would have financial implications for employers due to salary increases for exempt employees, new overtime payments, hiring additional staff or costs associated with layoffs. For higher education institutions, this could mean financial increases for academic support positions, research positions, as well as admissions, athletics and development roles, either as a minimum salary level increase or for HCEs.

The changes would likely require an FLSA audit to evaluate executive, administrative and or professional positions. Some salaries may need to be increased commensurate with the new standards.

If the changes are finalized, they are anticipated to become effective as early as January 2020. Segal recommends that organizations to start to prepare now so they will be able to act quickly to adjust to the new standards. Such preparations include assessing the current workforce and positions to determine what employees will have eligibility changes and, for the group of employees that will be affected, monitor and analyze how much overtime they are working.

What’s Next

Once the proposed rule is published in the Federal Register, the public will have 60 days to submit comments.

Although the rule is not yet in the Federal Register, the proposal and accompanying fact sheets are available on the DOL website.

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Kathryn L. Bakich

Kathryn L. Bakich

SVP, National Health Compliance Practice Leader

Jennifer Donnelly

Jennifer Donnelly

VP, Human Capital Consultant