The U.S. Department of Labor (DOL) is on its way to issuing a new rule to determine what workers are eligible for overtime pay, and employers are expected to see a salary threshold higher than the one that’s been in place since 2004 but considerably lower than the one previously sought.
The DOL finished a series of listening sessions for interested parties on October 17 in which it gathered opinions from stakeholders. Those sessions were in advance of issuing a Notice of Proposed Rulemaking (NPRM), which is scheduled for March.
An NPRM will be the latest step in the process to set a new salary threshold for workers eligible to collect overtime for hours worked over 40 in a workweek. Currently, workers are eligible for overtime unless they are classified exempt under the Fair Labor Standards Act (FLSA). To be exempt, employees must perform duties that are primarily executive, administrative, or professional and earn at least $23,660 a year ($455 a week). That salary threshold has been in place since 2004.
The previous effort to raise the salary threshold for exemption—begun during the Obama administration—would have raised the salary threshold to $47,476 a year ($913 a week). Employers claimed that new salary threshold was too drastic, and a federal judge in Texas struck down the new rule a few weeks before it was to take effect on December 1, 2016.
Likely New Threshold
Many expect the DOL to propose a new rule with a salary threshold in the $32,000 to $33,000 range. That would adjust the current level for inflation and make far fewer workers eligible for overtime than would have been under the 2016 rule.
Kimberly Klimczuk, an attorney with Skoler, Abbott & Presser, P.C., in Springfield, Massachusetts, says she suspects the majority of exempt employees already receive salaries of at least $32,000 a year. “So the DOL is probably planning an increase that will not have much impact on employers, and to the extent employers are affected, it will obviously be far less of an impact on employers than the previously proposed increase to $47,476 per year,” she says.
A threshold in the low $30,000 range would likely pass muster in court, Klimczuk says, since it is much less drastic than the threshold proposed in the 2016 rule. Plus, the DOL may have determined that a change to $32,000 or $33,000 is unlikely to face a legal challenge by employers.
Reggie Gay, an attorney with the McNair Law Firm, P.A., in Greenville, South Carolina, also expects a $32,000 to $33,000 threshold in a new rule. “I believe most employers understand there needs to be some adjustment due to inflation and other factors, but the prior proposal was drastic and had severe economic consequences,” he says.
Rodney Bean, an attorney with Steptoe & Johnson PLLC in Morgantown, West Virginia, also expects a new rule to be in the low to mid-$30,000s—a figure based on comments Labor Secretary Alexander Acosta made during his confirmation hearings.
Bean also expects such a level to meet less opposition. “I don’t think there would be nearly as much rancor about moving the salary threshold up to the low to mid-$30,000s,” he says. “It would still be hard for some employers, particularly in certain industries and some areas of the country. But it wouldn’t be nearly as shocking to the system as what we almost got with the Obama-era rule.”
During the last rulemaking process, some suggested that the DOL might change the duties test under the FLSA in addition to increasing the salary threshold. Klimczuk doesn’t expect the current administration to pursue such a change, but Bean points out the DOL has previously signaled that a rule change might include more than just the salary level. “I think employers would welcome clarification to some of the duties tests,” he says. “More clarity is always welcome, given the importance of wage law compliance to both employers and employees.”
Although a new rule may not address the duties test, a change may come at some point. “The current rules are to a large extent based on an outdated form of work,” Gay says. “They do not consider many of the current-day forms of work, including telecommuting and the use of computers and other technology. It would make sense to re-examine and update the job duties requirements.”
Also, the previous effort included discussion of incorporating automatic updates to the salary threshold to account for inflation without the need to go through the rulemaking process. “Given how unpopular automatic updates would be with employers, I do not expect the DOL under the current administration to allow for automatic updates,” Klimczuk says.
Bean also doubts that a new rule will include automatic updates to the salary threshold. “I’d be surprised if they want to fight over that again right now,” he says.
If an NPRM is issued in March, there will be another comment period, and then the DOL will take more time to examine the comments and issue a new rule.
“Given the volume of comments DOL has received, it has a lot of work to do before it can issue a new rule,” Bean says. Even if the agency gets an NPRM out for comment by March, “there will be a new public comment period and likely some lead time before compliance with a final rule is required,” he says. “I’d be surprised if employers will have to comply with a new final rule before 2020.”
Although it’s too early to make specific plans now, the attorneys advise employers to stay abreast of developments. “Employers should be aware that this change is on the horizon, but until we get information on exactly what the salary increase will be, there’s not much concrete employers can do to plan, except to just be aware that salary increases may be required in the next year or so,” Klimczuk says.
Bean agrees. “Right now, it’s important to watch for the changes and be ready to gear up for compliance,” he says. “What we all did a couple of years ago turns out to have been a good dry run for what’s coming. This time, if the salary levels are lower, maybe we can do it without worrying so much about how the business can survive.”
Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.