Time for Employers to Plan for $35,000 Overtime Threshold

Now that the U.S. Department of Labor (DOL) has made known its plan for a new threshold for overtime eligibility, it’s time for employers to prepare for a $35,308 a year level, attorneys who have been following developments say.

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The DOL announced a Notice of Proposed Rulemaking on March 7, ending speculation about the level that has raged since a previous rule change was rejected by a court in 2016. Under the new proposal, employees would have to earn at least $679 a week ($35,308 a year) in order to be exempt from overtime pay for any hours worked over 40 in a workweek. That’s up from the current $455 a week ($23,660 a year).

Although the proposed rule could still face a legal challenge, the new DOL plan is expected to meet with a far more favorable reaction than the plan pushed by the Obama administration that would have more than doubled the current salary threshold for exemption from overtime. That plan was struck down by a federal district judge before it could be put in place.

Although the DOL’s new plan changes the “salary test” for overtime exemption, it makes no change to the “duties test” that also is used to determine overtime eligibility. To be exempt from the overtime pay requirement, employees must earn more than the overtime salary threshold and perform work that is classified as executive, administrative, or professional in nature.

The new DOL proposed salary threshold “will probably make it to final rule status, but litigation is never out of the question,” says Paul Ross, an attorney with McAfee & Taft in Oklahoma City and coeditor of Oklahoma Employment Law Letter. “There was a coalition of business interests very publicly against the Obama-era proposal to raise the minimum salary threshold to the equivalent of just over $46,000.”

The DOL’s proposal—which will be up for public comment for 60 days before eventually making it to final form, probably in early 2020—revises the current minimum salary level for overtime eligibility that has been in place since 2004.

Although the legal questions that doomed the Obama-era plan remain, “the politics of the situation are very different this time around with a Republican administration proposing the rule and painting it as an effort at compromise,” Ross says.

Burton J. Fishman, an attorney with Fortney & Scott, LLC in Washington, D.C., also thinks the DOL has hit the “sweet spot” it was shooting for in setting a new threshold. “There is no telling what will ensue after comments and final rule, but this proposal should not raise the ire that the previous one did.” The rationale for the $679 a week figure is clear—20% of the lowest regional salary average, which is “very defensible,” he says.

Dena Calo, an attorney with Saul Ewing Arnstein & Lehr LLP in Philadelphia and coeditor of Pennsylvania Employment Law Letter, doesn’t expect another legal challenge since the new threshold “is reasonable based on where we are in the economy and how long it’s been since we’ve seen any change.”

Four-Year Review Proposed

Besides setting a new threshold, the proposed rule seeks comment on a plan to review the salary level every four years. Fishman, a frequent contributor to Federal Employment Law Insider, expects a less favorable reaction from employers to that part of the plan because it “puts too much uncertainty into the mix.” Such a review would involve different administrations, different economies, and would require use of DOL capabilities “when there might be other issues,” he says. “Not many wise politicians want to promise that far ahead.”

Ross says the four-year review plan may be less burdensome for employers than building automatic updates to the threshold level into the plan, but “the public comments will be interesting.”

Calo says a review-and-comment period every four years is important. The impact on employers during the prior period and the expected impact moving forward are factors the DOL should take into account before changing the overtime eligibility threshold level.

Advice for Employers

Now that the DOL’s proposed rule has been revealed, “employers must immediately begin looking at and adjusting salary levels for exempt employees, especially for managers and assistant managers,” Calo says. “It appears that implementation will be in January 2020. So there is time for employers to ensure they can adjust salaries up moving forward or begin the switch to hourly if that is necessary.”

Calo says at just under $17 per hour, the new threshold “should be a reasonable adjustment for most exempt employees, especially in those states that are moving toward [a] $15 per hour minimum wage for hourly workers over the next few years.”

Ross agrees it’s time for employers to start planning. “Stay informed and be patient,” he says.

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