Federal Overtime Rule Proposal Revives Debate on Fair Salary Cutoff

Democratic lawmakers intend to push for higher threshold

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As employers grapple with a new federal overtime rule proposal, the business community has described the salary threshold as fair, but worker advocates say the proposed level isn't high enough.

On March 7, the Department of Labor (DOL) announced its plan to raise the salary threshold to $35,308—which falls between the current $23,660 cutoff and the $47,476 threshold approved by President Barack Obama's administration but blocked by a federal judge.

To be exempt from overtime, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek.

Many employers panicked when the Obama administration issued its 2016 rule doubling the salary threshold, said Ryan Mick, an attorney with Dorsey & Whitney in Minneapolis. But they can "breathe a sigh of relief over the much smaller increase" that the current administration proposed, he said.

"The proposed rule will still have a significant impact on many businesses," he noted. The DOL estimated that more than a million employees will receive raises or become eligible for overtime.

Advocates Want Higher Threshold

Lawmakers continue to debate the appropriate salary threshold for workers to be exempt from overtime pay under the Fair Labor Standards Act's (FLSA's) executive, administrative and professional (so-called white-collar) exemptions.

Some Congress members said a $35,000 threshold is too low. Rep. Mark Takano, D-Calif., for instance, said the proposal is "woefully inadequate" compared to the Obama administration's targeted level. The DOL's "new overtime salary threshold ignores the economic realities middle-class workers are facing across the country," he said.

Takano plans to introduce the Restoring Overtime Pay Act so that Congress may enact "a meaningful overtime pay threshold that is responsive to the current needs of workers."

Sen. Patty Murray, D-Wash., also criticized the current administration's proposal: "Far too many people work more than 40 hours a week and are still struggling to support their families, and this proposed rule would mean that fewer workers would get paid fairly for the hours they work." 

Employers Support Smaller Increase

Employers told the DOL during listening sessions that it's OK to increase the salary threshold—but not by too much. Some employers worried that if the threshold was raised too high they would have to reduce benefits, limit promotion possibilities, delay the creation of new roles or eliminate existing positions to cover the higher costs.

Additionally, employees who earn less than the cutoff and are reclassified from exempt to nonexempt may view the change as a demotion.

[SHRM members-only HR Q&A: How can employers avoid salary compression when raising the minimum salary for exempt employees under the revised overtime regulations?]

Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., called the $35,308 threshold a good balance. "I think it's a fair salary-level test that accomplishes the goal of helping to define who would be an exempt employee and who would not," he said. Robinson is the former acting administrator of the DOL's Wage and Hour Division. The department went to great lengths to make sure that the salary-level and duties tests complement each other, he noted.

Rule Won't Affect Some Employers

The new proposal won't have much of an impact on many larger businesses and employers that already made changes to comply with the 2016 final rule before it was blocked, Mick said. "Small and medium-sized businesses may bear the brunt of that impact."

An increase to the FLSA salary threshold also won't affect employers in certain states, such as California and New York, that already impose higher cutoffs.

Depending on employer size, California workers must be paid $45,760 or $49,920 to qualify for white-collar exemptions. New York workers must receive between $43,264 and $58,500, depending on employer size, industry and location.

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

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