As the comment period winds down on a new proposed rule affecting overtime pay, employers need to consider the implications of the proposal that go beyond the U.S. Department of Labor’s (DOL) plan to set a new salary threshold for overtime eligibility.
The DOL is accepting comments on its proposed rule through May 21. If finalized in its current form, the rule will raise the minimum salary necessary for workers to be exempt from the overtime requirements in the Fair Labor Standards Act (FLSA). Under the current rule—in place since 2004—employees cannot be exempt from overtime pay unless they make at least $455 a week ($23,660 a year). The proposed rule raises the threshold to $679 a week ($35,308 a year).
In addition to making at least the minimum level of pay, exempt employees must perform duties that are executive, administrative, or professional in nature. Workers who don’t meet both the pay and duties tests must be paid time-and-a-half their base rate of pay for any hours worked over 40 in a workweek. The new proposed rule makes no changes to the duties required of exempt employees.
The new proposal is seen as much more acceptable to employers than a previous bid to change the threshold attempted during the Obama administration. That plan called for a weekly pay threshold of $913 a week ($47,476 a year). Since many employees in exempt positions already earn at least the level in the current proposed rule–$679 a week—opposition has been more muted than that voiced over the Obama-era proposal.
But even the more modest increase in the threshold level of pay still presents problems for certain employers, according to Jo Ellen Whitney, an attorney with the Davis Brown Law Firm in Des Moines, Iowa.
“I think the rule is particularly problematic in certain industries where there is a high level of professional employment but also part-time or fill-in work,” Whitney says. For example, licensed independent social workers and other healthcare professionals often work part-time. Although they clearly meet the professional exemption standards for the kind of work they do, they may not meet the minimum threshold pay if they work limited hours.
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Whitney says the rule “at least in its first iteration in the Obama administration” was directed at the fast-food industry, but it has a much broader impact and, in many ways, carries unintended consequences for those who work part-time.
The Obama administration’s proposed rule was struck down by a federal court in Texas shortly before it was to have taken effect on December 1, 2016.
In addition to objecting to the large increase in the pay threshold, the court questioned the part of the proposed rule that would have implemented automatic updates to the minimum threshold every three years. The new proposed rule does not call for automatic updates but does provide for a review every few years to determine if the level should be changed through rulemaking.
“Any rule of this type could be waylaid by litigation,” Whitney says. “The Obama-era rule was stayed due to litigation in the Texas courts, but the basis for that ruling was not solely the amount at issue. It was the fundamental ability of the DOL to set a new standard which had periodic updates. That type of issue could crop up again.”
What to Do
The DOL has anticipated a new rule taking effect in 2020, but that could be delayed by litigation or the amount of time it will take to review all the comments that are being submitted. The DOL is encouraging interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20.
Regardless of the effective date, Whitney advises employers to assess their workers and determine who should or should not be classified as exempt.
“Much of that work was done the first time around, but it is always wise to use this opportunity to assess current jobs, classification, and base rates,” Whitney says. “If you are getting it wrong, now is a good time to correct it.”
Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.