Prepare for New Overtime Rule Now but Wait to Make Changes

 

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​Attendees listen in a session at the 2019 Society for Human Resource Management Employment Law & Legislative Conference.

The Department of Labor (DOL) has proposed a new federal overtime rule, which would raise the salary threshold for white-collar exemptions to $35,308. Nothing has been finalized yet, but the DOL may give employers little time to bring their pay practices into compliance so it can ensure that a final rule is in place well before the 2020 election, said Tammy McCutchen, an attorney with Littler in Washington, D.C.

Therefore, employers shouldn't wait for a final rule to determine which employees should be reclassified and which ones should be given raises if the proposed rule takes effect, she said at the 2019 Society for Human Resource Management Employment Law & Legislative Conference on March 19.

Employers should also take this opportunity to review workers' job duties and correct any exempt classification errors, she said. "Compliance will take more time than you anticipate."

[SHRM members-only resource: FLSA Proposed Salary Increase: Impact Analysis Guide and Calculator]

"It is a good idea to start getting ahead of this issue and planning for changes in 2020," said Brett Coburn, an attorney with Alston & Bird in Atlanta. But he said employers shouldn't make any changes yet. "We still need to wait and see what the final threshold will be."

Salary-Threshold Update Needed

"It's past time for an update," McCutchen said. She was the DOL's wage and hour division administrator when the salary threshold was last raised in 2004.

The proposed level is a compromise between the current $23,660 threshold and the now-blocked $47,476 cutoff that was adopted by President Barack Obama's administration in 2016.

Employees must perform certain duties and earn the minimum salary to be classified as exempt from overtime pay under the Fair Labor Standards Act's executive, administrative and professional exemptions (the so-called white-collar exemptions). Otherwise, workers must be paid one and a half times their regular rate for all hours worked beyond 40 in a workweek.

The DOL estimates that if the new overtime rule is finalized, more than a million currently exempt workers would be reclassified to nonexempt and other employees would receive a raise to meet the new threshold. 

Challenge to 2016 Rule Still Pending

The DOL is aiming to move fast. Although a federal judge blocked the Obama-era overtime rule's higher salary threshold, the case is still pending. The district judge granted a permanent injunction to block the rule, but the DOL had appealed the decision to the 5th U.S. Circuit Court of Appeals. The 5th Circuit stayed the appeal pending further DOL rulemaking.

"So the 2016 final rule is not dead yet," McCutchen explained. A domino effect is possible: President Donald Trump could lose the next election. A new president could take office before the 2019 proposal takes effect. The new administration's DOL could restart the litigation over the 2016 rule, and the 5th Circuit could reverse the injunction. Then the $48,000 salary level could come back.

"Unless you're fine with $48,000, DOL needs to finish its work … before the end of the year," McCutchen said.

The regulatory process requires:

  • The Office of Management and Budget (OMB) to review a draft of the Notice of Proposed Rulemaking (NPRM).
  • Publication of the NPRM.
  • A 60-day comment period.
  • The DOL to review all comments.
  • The DOL to draft the final rule.
  • The OMB to review the final rule draft.
  • Publication of a final rule.

"There will be hundreds of thousands of comments to review," McCutchen said. And it's the DOL's legal duty to review them. "It's a lot of work."

Employee-advocacy groups would like to see the Obama-era rule revived. "Working people should not have to wait another day for government to be on their side," said Christine Owens, executive director of the National Employment Law Project (NELP). NELP has urged the DOL to rescind the new proposal and "fight to implement stronger protections."

Submit a Comment

Employers that wish to comment on the proposal may do so by visiting www.regulations.gov. They will have 60 days to comment from the time the rule is published in the Federal Register.

"I would like to see employers submit comments supportive of the $35,308 minimum salary level for exemption," McCutchen said.

"It's about reasonableness," she said. "It's about compromise, and it is about updating." However, she noted, employers may want to question the proposed threshold for the highly compensated test.

Currently, employees whose total compensation is at least $100,000 a year are considered highly compensated employees and are eligible for exempt status if they meet a reduced duties test as follows:

  • The employee's primary duty must be office or nonmanual work.
  • The employee must "customarily and regularly" perform at least one of the bona fide exempt duties of an executive, administrative or professional employee.

In the 2019 proposal, the DOL is seeking to raise the highly compensated salary threshold to $147,414. At that level, many employers in the South, as well as retailers, restaurants, nonprofits, and state and local government agencies will be shut out of the highly compensated test, McCutchen said. "It's a national rule. It has to work everywhere." And just as with the minimum wage, states can adopt their own, higher exempt salary level.

[Visit SHRM's resource page on FLSA exemption classification.]


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