In the first segment of our three-part blog series on the new overtime proposal, we will detail the top takeaways from the DOL’s Notice of Proposed Rulemaking, and some salient points for businesses to consider:
The U.S. Department of Labor’s (DOL) highly-anticipated proposal to change the minimum salary threshold for overtime eligibility has finally been released – placing the new threshold at $35,000 per year (or $679 per week) up from $24,000, the proposed regulations would make over a million more workers eligible for overtime pay. The salary threshold has remained the same since its last update in 2004. For now, the DOL will continue to enforce the 2004 threshold as the proposal is only the first step of many in formalizing a final rule. A public notice-and-comment will be available for 60 days after the rule has been published to the Federal Register, open until May 21.
So what are the key changes?
- There are no proposed changes to the “duties” tests for any exempt workers earning more than the salary threshold. This test helps determine whether or not an employee should be entitled to overtime.
- The “highly compensated employee” (HCE) salary threshold for exemption will be raised from $100,000 to $147,414.
- The recently defined cutoff is less ambitious than the previously proposed $47,000 of 2016, which would have affected over 4 million workers.
- Unlike the 2016 rule, the new proposal does not mandate automatic periodic adjustments to the salary threshold. Instead, the department is asking the public to assess whether and how the DOL might update the salary threshold requirements every four years.
On several counts, including the unchanged “duties” test and no automatic salary adjustments, employers are expected to look favorably on the new proposal, with some exceptions. Since large businesses are likely to absorb new costs more capably, some smaller and more local businesses may express concerns regarding the $10,000+ raise in overtime threshold, citing difficulties in meeting payroll costs.
Proceed With Caution
Despite comprising the majority, a “salaried” or “white-collar” employee is not necessarily an employee exempt from overtime. What defines an employee as exempt or non-exempt is not just how or what they are paid – but also their job duties and responsibilities. Both are taken into account when determining overtime status, using the federally outlined “salary test” and “duties test”. While the “salary test” is redefining its threshold with the new proposal, the “duties test” will remain the same. Both tests must be passed for a salaried employee to qualify as exempt.
Though there are few exceptions, an employee that passes one test but not the other could be eligible for overtime pay, even if they are salaried. Employers would then be obligated to track this employee’s time and calculate an hourly rate to measure any week worked over 40 hours.
Keep In Mind
This proposal is just that – a proposed set of rules that still requires both public and government vetting. Any changes would not take effect until after publication of a Final Rule.