On March 7, 2019, the Department of Labor released a Proposed Overtime Rule that would increase the salary level threshold for positions that are exempt from the overtime provisions of the FLSA from the current $23,660 per year ($455 per week) to $35,308 ($679 per week). While this may seem like a big leap, recall that under President Obama, the proposed increase was even greater, to $47,476 per year ($913 per week).
Rest assured, there is no danger that this change will be implemented tomorrow or anytime in the near future. Procedurally, the Proposed Rule will be published in the Federal Register, and there will be a 60-day period for public comment. After that, the DOL will review the comments, which could take several months. Following DOL’s review, there is likely to be litigation that will also impact the review and implementation of this Proposed Rule. At the conclusion of that entire process, the DOL will develop a Proposed Final Rule and submit its Proposed Final Rule to the White House Office of Management and Budget (OMB) for still more review. As a point of reference, in 2016, the OMB’s review of the Obama era Proposed Final Rule took nearly 2 months. Even after a proposed Final Rule is released, the DOL will likely give employers 120 to 180 days before the Final Rule becomes effective. All of this means that we are months and months away from a Final Overtime Rule implementing a salary level threshold increase. Keep in mind, we will also have a federal election in the fall of 2020. Certainly, the Trump Administration will want its Final Rule in place before then, but it could run into the same problem as the Obama era Final Rule – a change of administration may derail its plans.
What does this potential salary level threshold increase mean for employers and employees? It means that any employees who earn below the $35,308 per year threshold will be reclassified as non-exempt and eligible to receive overtime pay for hours worked in excess of 40 hours per work week. Unlike the Obama era Final Rule, the Proposed Rule does not call for automatic and regular increases to the salary threshold on an ongoing basis. Also, keep in mind that simply increasing an employee’s pay to at or aboe the $35,308 threshold does not automatically mean the employee or position is exempt from overtime pay requirements. To be exempt, the employee's job duties also must satisfy one of the duties tests set forth in the Fair Labor Standards Act and/or your state wage and hour laws.
Given the uncertainty of the landscape relating to yesterday’s proposed Final Overtime Rule, what should employers do to prepare?
- Conduct an internal audit to gain a sense of how many employees’ annual salaries fall between $23,660 and $35,308. This will identify the pool of potentially affected employees and the possible financial impact to the organization in the event you decide to increase salaries to satisfy the proposed new threshold.
- Remember the second prong of federal exemption testing: duties. Work with your in-house HR Department or external HR and employment law advisors to assess the duties of the employees in the pool to determine if their duties satisfy any of the FLSA exemptions. If they do not, the organization may need to reclassify the position as non-exempt and start paying those employees overtime – if and when the Final Rule is implemented and effective.
- Sit tight and wait to see what the Proposed Final Rule is after the comment period and likely litigation. Lake Effect will continue to keep you apprised on the status of a Final Rule.
The attorneys and HR professionals at Lake Effect HR & Law are ready and willing to assist and advise as your organization conducts its exemption audit. Contact us or 1-844-333-5253.