Proposed Overtime Rule Expected Soon

With the publication of a proposed overtime rule expected as soon as next month, employment law attorneys are anticipating that the U.S. Department of Labor (DOL) will recommend higher salary level thresholds for the white-collar exemptions to the rule. If so, more people will be eligible for overtime pay.

"President Biden is forcefully committed to improving standards of living for the working middle class," said Steven Suflas, an attorney with Ballard Spahr in Salt Lake City and Mount Laurel, N.J.

"Employers should expect a proposed salary amount that at least approximates the amount proposed in 2016," which ultimately was blocked by a judge just 10 days before it would have been implemented, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Greenville, S.C. The proposed minimum salary level for the Fair Labor Standards Act's executive, administrative and professional exemptions thus could be $913 per week or $47,476 per year, if not more, he predicted.

In 2019, the Trump administration implemented new salary levels of $684 per week. But the Biden administration may be looking to make bigger changes.

[Jump to an interactive timeline of the overtime rule.]

Duties Tests

The 2016 regulations were ruled to "put too much emphasis on the salary requirement, thereby effectively making the duties test[s] irrelevant," said Jason Barsanti, an attorney with Cozen O'Connor in San Diego.

Robinson said it is doubtful the proposed rule will include language to modify the duties tests, but employers should still be vigilant to ensure that the duties tests are not part of the proposed regulations. Ensuring the salary threshold and duties tests complement one another and that one test doesn't dominate the other is critical to ensure correct classification, he noted.

The duties tests denote which employees are exempt—not eligible for overtime pay—and they depend on a variety of factors. Each of the three white-collar exemptions has slightly different criteria:

• Executive exemption. The employee's primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee's suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight). 
• Administrative exemption. The employee's primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer's customers. The employee's primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
• Professional exemption. The employee's primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.

Under federal law and laws in most states, an employee's exempt status is determined by the employee's primary duties and whether those duties are exempt, said Robert Boonin, an attorney with Dykema in Ann Arbor, Mich.

Under these tests, it is possible for a primary duty to occupy less than 50 percent of the employee's time. It is also possible to count time an employee may be performing both exempt and nonexempt duties concurrently, such as if a manager runs a cash register.

By contrast, California requires the primary duty to occupy at least 51 percent of the employee's time, and the performance of those duties cannot be done while the employee also performs nonexempt duties, he explained. Many employers fear the DOL will adopt California's rules, according to Boonin.

Trump Administration Increased the Salary Threshold Level

The 2016 rule also called for an automatic increase in the salary threshold every three years.

The Trump administration's DOL "implemented a more modest salary basis increase from $455 per week to $684 per week and did not adopt the automatic cost of living increase," Barsanti noted.

The salary threshold is now $35,568 per year, Robinson said.

The Trump administration's 2019 final rule retained one provision from the blocked Obama administration rule, Robinson added: It kept the option for employers to apply nondiscretionary bonuses or other incentive payments to satisfy up to 10 percent of the salary level.

How Much of an Increase in the Salary Level?

"Clearly the department is primed to increase the salary level," Boonin said. "The question is, by how much?"

He noted, "Some say that the figure used by the Obama administration was too low and should be closer to $90,000. Doing so, or adopting any major increase, will face challenges similar to those raised in 2016—that is, that a change significantly causing many to lose their exempt status is neither rational nor consistent with the statute."

Another change that the department may consider is to increase the salary level periodically, such as by indexing it to the consumer price index, Boonin said. "This type of change will also invite legal challenges since many believe that the level can only be modified vis-à-vis the normal rulemaking process," he noted.

"The best bet is the Biden administration will seek to increase the salary amount further, probably closer to the Obama amount and possibly seek to reimplement the automatic increase," Barsanti said.

"Changes are on the horizon," Boonin noted. If the administration is serious about getting its changes to survive legal challenges, "the best course would be to be moderate in its approach—and quick."

"Employers in certain sectors—especially food service, retail and other industries where facility managers and assistant managers might meet the duties test but make less than $900 or so per week—should be concerned once again," Barsanti said. "Higher salary requirements could cut into their already slim profit margins or require them to reclassify a substantial number of employees."

Russell Bruch, an attorney with Morgan Lewis in Washington, D.C., explained, "If there is a significant increase in the salary-basis level for the executive, administrative and professional exemptions, this change will require employers to identify and evaluate positions compensated below the new threshold." Employers then will have to "decide whether to reclassify employees or raise their salaries."