SHRM Backs Higher Overtime Salary Threshold, but Not Automatic Increases

​SHRM recently raised concerns that a proposed rule to automatically increase the salary threshold for the federal overtime exception could cause an undue financial burden on businesses.

In addition to raised salaries for some exempt workers and higher overtime expenses, the proposal could lead to increased costs for workforce analysis, communications and potential salary adjustments further up the organizational hierarchy to alleviate salary compression issues, SHRM said.

SHRM is one of more than 33,000 entities that submitted public comments on the U.S. Department of Labor's (DOL's) proposed overtime rule. It's unclear when the agency will release a final rule.

The proposed overtime rule would:

• Increase the salary threshold from $684 per week ($35,568 annually for a full-year worker) to $1,059 per week ($55,068 annually for a full-year worker). The increase reflects the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region (currently the South).
• Increase the salary threshold for highly compensated employees from $107,432 annually to $143,988 annually. The increase reflects the earnings of the 85th percentile of full-time salaried workers nationally.
• Implement automatic increases every three years to all salary thresholds.

SHRM’s Position

In public comments submitted to the DOL on Nov. 7, SHRM said it supports regular and reasonable increases to the overtime salary threshold but opposes automatic increases.

Emily Dickens, SHRM's chief of staff and head of public affairs, said employers should receive adequate notice and have an opportunity to comment on any changes.

"This is critical because Congress' intent was for the salary threshold to be just one part of a three-part test," she said. The other two parts are being paid on a salary basis and primarily performing executive, professional or administrative job duties.

The proposed rule "creates a mechanism that automatically adjusts the salary threshold, potentially setting up a system in which, over time, the salary threshold would vastly outflank the duties test in terms of impact and importance," SHRM wrote.

SHRM's recent survey of its members found that only 4 percent of respondents did not support any increase in the overtime salary threshold. Some members expressed concerns that the proposed jump in the threshold was too big.

"Tying the salary threshold to the 35th percentile of full-time, salaried workers presents a major problem. It may create a never-ending cycle that accelerates the raising of the salary threshold in a way that is not at all representative of, or even related to, impacted workers' job duties," SHRM wrote. "A better reference point could be an inflation-related index that is not susceptible to being artificially inflated by the [DOL's] rulemaking."

Dickens also urged the DOL to revise the rule to lengthen the compliance period to at least 180 days. "The proposed 60-day compliance window is too short to allow for a meaningful case-by-case analysis of current salary levels and average hours worked by salaried employees," she said. "Any final rule should seek to provide as much clarity and consistency as possible to avoid disruption to organizational operations. This requires more time for professionals and executives charged with the day-to-day application of this critical workplace protection."

With a change to the salary threshold, employers will need time to decide whether to reclassify employees; how to adjust compensation plans and rates; how to adjust work schedules; and whether to hire more workers or downsize, SHRM noted.

Consider Conducting an Audit

"We recommend that companies consider auditing their current employee population to determine the impact on staffing and compensation models, and review the classification of close-to-the-line positions," said Russell Bruch, an attorney with Morgan Lewis in Washington, D.C.

Changes in response to the new salary threshold could include raising the salary for certain employees, bolstering job duties, or reclassifying employees from exempt to nonexempt, which would require a communication strategy, manager and employee training, and new or revised timekeeping policies and practices, he said.