DOL Is Reviewing Overtime Rule

​More workers should be eligible for overtime pay, said Secretary of Labor Marty Walsh, who testified recently that the wage level to qualify for overtime pay is "definitely" too low. Speaking during questioning before the House Education and Labor Committee, he said the U.S. Department of Labor (DOL) is reviewing the overtime regulation and he believes there should be automatic and regular updates to the overtime threshold.

Rep. Mark Takano, D-Calif., led the questioning, noting that he sent a letter to encourage the DOL to adopt a salary threshold that by 2023 would be around $85,000 annually. The overtime threshold now is $35,568 annually or $684 a week. Workers who don't earn this amount have to be paid overtime, even if they're classified as a manager or professional.

The $684-per-week level under the 2019 rule now in place was an increase from the $455 weekly threshold that had been in effect since the early 2000s, noted Keith Kopplin, an attorney with Ogletree Deakins in Milwaukee. But, he added, "it is significantly less than the $913 [weekly] threshold that had been instituted by the Obama administration back in 2016."

A federal court blocked the Obama administration's 2016 rule because the judge believed it placed too high an emphasis on how much workers were paid for purposes of determining their exempt status, rather than the types of duties they perform.

"Raising the minimum salary thresholds far above current levels, limiting the number of people who qualify to be exempt from overtime and indexing the salary levels with annual automatic increases have been pet projects for the plaintiffs' bar and Democratic administrations for many years," said Lee Schreter, an attorney with Littler in Atlanta. "Those goals were not achieved during the Obama administration and, predictably, the same regulatory ambitions are emerging once again."

How far a new overtime rule will go is the real question, said Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich. Will it tweak the overtime threshold by some modest and incremental increase to the salary level? "Or will it rework the duties tests a la California and turn the status quo of many decades on its head?" he asked.

"If the adjustments are too aggressive, we can expect major court battles and, depending on the timing, congressional pushback," said Boonin, who will be providing a wage and hour update at the SHRM Annual Conference & Expo 2021 in September.

Steps for Employers

Employers should begin planning for potential changes now by looking at those exempt employees who are between the current level and the Obama-era proposal of $47,476, said Steven Suflas, an attorney with Ballard Spahr in Salt Lake City and Mount Laurel, N.J. Start thinking about whether to potentially raise those workers to a higher salary level or convert them to nonexempt status and manage those new overtime costs, he recommended.

As any regulatory proposals take shape, Schreter said that employers should carefully review the impact any proposed changes will have on their businesses and submit detailed comments documenting:

• The economic impact of any salary increases on their businesses.
• How these types of changes are particularly ill-timed following the pandemic and in the face of employers' efforts to recover from the economic challenges created by the pandemic.

In Walsh's comments to the House committee, "one of the things that stood out to me was the secretary's commitment to increasing jobs and strengthening the post-pandemic workforce," said Jennifer Taylor, an attorney with Cozen O'Connor in Miami. "It remains to be seen how the DOL can balance increased jobs with a potential for imposing higher wage requirements on employers who may be continuing to struggle."

Taylor added that the DOL's decision to revisit overtime wage thresholds is "consistent with President Biden's commitment to expand worker wages and benefits."

Once the proposed salary threshold levels are known, Schreter said that employers should:

• Carefully analyze the financial impact the proposed changes will have.
• Determine whether to increase salary levels for some or all impacted employees and whether any impacted employees should be reclassified to hourly, nonexempt positions.
• Analyze the impact salary changes may have on compensation planning and whether any changes to minimum salary levels will necessitate additional salary increases for other individuals to maintain existing salary bands.
• Determine whether any salary changes will impact any ongoing pay equity analyses and require further downstream changes to maintain or achieve pay equity goals.

State Overtime Thresholds

Most states adopt the federal salary level for applying the white-collar exemption, but a few—including Alaska, California and New York—apply higher overtime salary threshold levels to those who satisfy the applicable duties and salary basis tests, Boonin noted.

"For employers in those states, adapting to a higher level set by the DOL under the FLSA [Fair Labor Standards Act] will be less challenging if at all significant, depending on how high the DOL shoots for," he said.

California has different salary thresholds for the white-collar exemptions depending on whether an employer has 26 or more employees ($1,120 per week or $58,240 annually) or has 25 or fewer employees ($1,040 per week or $54,080 annually), said Matthew Feery, an attorney with Much Shelist in Chicago.

In New York state, the minimum salary threshold will differ depending on whether an employer is in New York City ($1,125 per week or $58,000 annually), on Long Island or in Westchester County ($1,050 per week or $54,600 annually), or located in the rest of the state ($937.50 per week or $48,750 annually), he noted.

"The bottom line is that businesses should brace themselves for the possibility of some increase to the exempt employee salary threshold," said Jeffrey Ruzal, an attorney with Epstein Becker Green in New York City. "It is advisable that businesses start to prepare for the real possibility that there will be an increase in some measure during the Biden administration. This includes conducting a self-audit of one's workforce to determine how potential adjustments could be made without jeopardizing headcount or organization of one's workforce."

[Want to learn more about wage and hour compliance? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]