Posted by Rick Mahrle
The Department of Labor (“DOL”) has proposed a new federal overtime rule that would raise the salary requirement for workers who qualify for the white-collar exemptions. The required salary would be raised from $23,660 to $35,308 per year ($679 a week).
If this feels like déjà vu, there is good reason. In 2016, the DOL approved a rule increasing the salary threshold to $47,476. That rule was blocked by a court in Texas. As a result of the Texas court’s 2016 ruling, the salary requirement remained at $23,660 per year ($455 per week).
A brief primer on why this matters…
Employees generally fit into one of two categories. They are either entitled to overtime, or they are not. If not, we usually say they are “exempt.”
One key component to whether an employee is exempt or non-exempt involves the duties they perform. Employees who qualify as executive, administrative, or professional, based on the primary duties they customarily and regularly perform, are considered exempt. However, there is a second step. Even if the employee meets all of the duties test requirements, under the current law, they also have to receive a salary of at least $23,660 a year.
The proposed rule, which may take effect as early as the second quarter of 2020, should not come as a surprise. The current salary threshold has been in place since 2004 and is below the federal poverty level for a family of four. An increase in the threshold amount is overdue.
The new proposed figure of $35,308 is something of a compromise from the 2016 $47,476 amount, and most experts believe that this figure will stick. However, note that the proposed rule is just in the initial comment phase. Some changes may still be made.
What should every employer be doing now in anticipation of this change?
First, you should examine whether the employees you have been treating as exempt really are exempt. Do those employees actually perform the duties that meet the exemption qualifications? If not, now is a good time to change their status to non-exempt.
Consider what you are going to do with your employees who meet the duties test and are close to the new salary minimum. Will you give them a pay raise so they will continue to be exempt? If they seldom work more than 40 hours per week, will it be more cost effective to change their status to non-exempt and begin paying them overtime rather than giving them a pay raise?
Next, consider the employees who work more than 40 hours per week and were exempt, but are nowhere near earning $679 per week. Will you adjust their compensation to pay them on an hourly basis at a lower hourly rate so that they are still making about the same amount each week with overtime added? Will employees who were exempt believe they are being demoted if you start paying them an hourly basis? For those workers who are now entitled to overtime, should you also consider putting in stricter controls to limit the number of overtime hours worked?
There are many questions to consider when preparing for a federal rule change such as this. If you would like assistance in planning for this change, please reach out to Rick Mahrle at firstname.lastname@example.org.
Richard K. Mahrle brings 40 years of experience in employment law, litigation and alternative dispute resolution and he is committed to giving clients the best value. His experience handling employment matters includes restrictive employment covenants, defending wrongful termination and discrimination claims, and advising clients on complying with employment across many industries. For 12+ years, Rick has served as an arbitrator/ mediator on the construction, employment and commercial panels of the American Arbitration Association. He has held an AV Rating with Martindale Hubbell since 1980 and consistently ranks in Best Lawyers in America and Southwest Super Lawyers.