HR Management & Compliance

New OT Rule Expected to Set Salary Threshold in Mid-$30K Range

A new rule to determine what workers are eligible to collect overtime pay is likely to be released soon, and it is expected to set an annual salary threshold in the mid-$30,000 range, possibly around $35,000.

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News organizations report that the U.S. Department of Labor’s (DOL) long-stalled rule will set a new floor for workers exempt from overtime under the Fair Labor Standards Act (FLSA), but it will not provide automatic adjustments to the salary level. Instead, it will provide for a review every few years to determine whether the level needs to be changed through rulemaking.

Also, the new rule is not expected to allow for any regional differences in the salary threshold level.

Currently, employees exempt from overtime must make at least $23,660 a year ($455 a week). That salary threshold has been in place since 2004.

The Obama administration tried to put a rule in place that would have more than doubled the salary floor, but a federal judge in Texas struck it down before it was to have taken effect on December 1, 2016. The rule would have set the threshold at $47,476 a year ($913 a week).

‘Very Long Wait Seems to Be Near an End’

“The very long wait seems to be near an end,” Burton J. Fishman, an attorney with Fortney & Scott, LLC in Washington, D.C., said of reports about the new rule. He doesn’t expect automatic indexing to be part of the new rule because of legal complications. Also, he thinks setting different salary levels for different regions of the country would be too difficult to administer.

Unless classified exempt under the FLSA, workers must be paid at least one and one-half times their regular rate of pay for any hours worked over 40 in a workweek. To be exempt, employees must meet both the “salary test” and the “duties test.” In addition to earning at least the threshold level of pay, exempt workers must perform duties that are primarily executive, administrative, or professional.

New Salary Level to Hit Some Employers Hard

Fishman expects the impact of a new rule to be mitigated because many employers started making adjustments in light of the prior proposed regulation, and many did not readjust after the court’s injunction in 2016. He points out that many employers “have inched toward” increasing their pay levels as a result of mandated increases some states and cities have made in their minimum wages, inflation, and the tight labor market.

The new salary level will hit some employers hard, however, since there doesn’t appear to be an exception for nonprofits and research-based academia, Fishman says, adding those sectors will have to be creative to come to terms with the new threshold.

During the long road to formulating a new rule, there were discussions of making changes to both the salary test and the duties test, but the new rule is expected to change only the salary level.

A possible change to the duties test is “the big imponderable,” Fishman says. If the new rule makes changes to exempt duties, it will have more of an impact on employers.

“The real question is if the threshold is at this relatively modest and anticipated level, and without an automatic increase, will that be sufficient to forestall additional litigation,” Fishman says. He wonders if the DOL has “found that sweet spot to satisfy those demanding change without triggering more litigation.”

Fishman says opponents may go back to the same Texas judge who issued the 2016 injunction if they elect to challenge the new rule, but the overtime threshold “may not be as pressing a compensation issue today,” when attention also is being focused on the “Fight for $15,” pay inequality, the proposed Fair Pay Act, and other issues “that have become more prominent, politically and practically.”

Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.