Employer interests are sounding off against the U.S. Department of Labor’s (DOL) proposal for a dramatic increase in the overtime threshold, but employers are still advised to take a close look at their exempt workforce to make sure their status is justified.
The DOL released its long-awaited proposed rule on August 30. If finalized, the rule would guarantee overtime pay for most salaried workers earning less than $1,059 a week, or $55,068 a year. The current threshold is $684 a week, or $35,568 a year.
In addition to setting a new overtime threshold that is $19,500 higher than the current level, the proposed rule would automatically update the threshold every three years to reflect current earnings data.
The proposed rule also would raise the overtime threshold for highly compensated employees to $143,988 a year, up from the $107,432 current threshold.
The federal Fair Labor Standards Act (FLSA) requires hourly workers to earn time-and-a-half pay for hours over 40 in a workweek. But certain workers are exempt from that requirement if they perform executive, administrative, or professional duties and earn the threshold amount. The proposed rule doesn’t significantly change the duties test, just the salary threshold.
Attorneys who work with employers on FLSA matters are advising employers to examine their options under a new overtime rule, but the attorneys expect a replay of the litigation that shut down a 2016 attempt to raise the overtime threshold.
A federal district court struck down the 2016 proposal on grounds that the proposed salary threshold was too high, and the automatic update mechanism was unlawful.
Raanon Gal, an attorney with Barnes & Thornburg LLP in Atlanta, Georgia, expects lawsuits again. “To raise the threshold amount generally is not so controversial,” he says, explaining that “increasing the threshold by over a third in one big swoop creates a lot of pressure on companies to significantly rework the way they pay people in a short amount of time. This will also cause greater shockwaves in areas of the country where cost of living and wages are lower.”
Al Vreeland, an attorney with Lehr Middlebrooks Vreeland & Thompson, P.C., in Birmingham, Alabama, also expects legal action but isn’t surprised by the proposal. “DOL has taken the attitude that the courts are likely to strike down any rule they propose, so they might as well swing for the fences and take credit with the labor movement,” he says.
Vreeland says he is certain legal challenges are ahead—probably in the same district court that struck down the 2016 proposal—“and it’s highly likely this will be struck down also.”
“It is important to remember that the Fair Labor Standards Act represents the floor, and over the years, some states have implemented higher salary thresholds for exempt status,” Wurgaft says, adding that it seems the DOL “is not looking to keep pace but instead is trying to push the threshold and force states to keep up.”
Advice for Employers
Gal says employers have options. “Where legal and where it makes sense, companies may choose to use the fluctuating workweek,” he says. That method can hold down overtime costs, but isn’t allowed in many circumstances.
Vreeland also recommends employers evaluate positions to determine which may merit increases to preserve the exemption. Another option is to redistribute work from those positions to reduce overtime exposure.
Wurgaft advises reviewing and updating job descriptions to ensure the tasks employees perform are accurately reflected and still qualify as exempt under the job duties test. She also advises employers with employees in U.S. territories to be aware that the proposed rule seeks to extend overtime protections to workers in the territories, including Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
Once published in the Federal Register, the DOL will collect public comment for 60 days before issuing a final rule. Employer interests already are voicing complaints on the proposal, with the U.S. Chamber of Commerce calling it “the wrong rulemaking at the wrong time.”
A statement from Marc Freedman, the Chamber’s vice president of workplace policy, says the proposed threshold would increase costs for small businesses, nonprofits, and other employers. He also said the automatic updates clause “lacks statutory authorization.”
Labor interests, meanwhile, are praising the proposal. Liz Shuler, president of the AFL-CIO, called it “a victory for working people that will improve the lives of millions of families across America.”
Tammy Binford is a Contributing Editor at HR Daily Advisor.