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Overtime law changes: News, analysis and compliance advice



DOL publishes final rule: Overtime threshold rising to $35,568 on Jan. 1, 2020

After years of anticipation, false starts and lawsuits, the U.S. Department of Labor on Sept. 24 issued its final rules regarding which employees are eligible for overtime pay.

Under the new rules, white-collar exempt employees earning $35,568 per year ($684 per week) or less will be eligible for overtime pay when they work more than 40 hours in a workweek. The current threshold of $23,660 per year has been in place since 2004. Barring a last-minute lawsuit, this new level will take effect on Jan 1, 2020.

The DOL says this change will make 1.2 million more Americans eligible for overtime pay. In addition to raising the salary threshold, this rule:

  • Allows employers to credit nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the new threshold.
  • Raises the annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432.

Employers were pleased that the final rule decided not to make any changes to the so-called Duties Test, which analyzes whether the employees’ duties fall within the classifications for one of the exemptions (administrative, executive and professional). Changing the duties test would have required employers to walk through a more complex analysis to determine exempt status for each worker.

FREE REPORT: For a complete description of the new Overtime Rule, including a DOL chart to help you decide which employees qualify for FLSA exemptions, go to www.thehrspecialist.com/OT2019rule



When will the threshold change again? The DOL made no promises, but said it plans to update the overtime threshold “more regularly in the future.” When it does make changes, the DOL says it plans to use the less-complex notice-and-comment process, rather than the full-fledged regulatory process.

What to do now: Salary levels. Review your list of employees listed as exempt and paid on a salary basis of at least $455 per week now. If you are already paying $684 per week, you need do nothing. They will continue as exempt employees. For those who earn at least $455 but less than $684, you will have to decide whether to raise their salaries to the new level effective January 1, 2020 or convert them into hourly employees and pay overtime for work over 40 hours per week.

Whether you decide to convert exempt workers to hourly depends on how many overtime hours you believe they would work and thus be paid time-and-a-half for. If your exempt workers now work a standard 40 hour week, keeping them at their current pay level, but changing the salary to an hourly figure would not increase their pay. However, those who do work in excess of 40 hours per week would be entitled to overtime.

What to do now: Bonuses. Now is the time to review your commission and bonus programs. If you do pay incentive payments like commissions or provide non-discretionary bonuses at least once per year, beginning January 1, 2020, you will be able to credit weekly $68.40 towards the new weekly salary level.

If you don’t have a bonus plan, you have three months to put one into effect before raising salary levels. If the employee does not earn enough via commissions and bonuses by the end of a 52 week period, employers will be able to make a one-time catch-up payment at that time, so there’s little reason not to take the credit if you have a bonus plan that meets requirements.

The history: Drafted in March 2019 and fast-tracked through the rulemaking process, the overtime rule attracted more than 116,000 public comments. According to the DOL, nearly everyone who submitted comments agreed that the salary threshold increase was long overdue.

The new overtime salary threshold is substantially lower than a proposal that almost became official in 2016. The Obama administration tried to raise the salary threshold to $47,476 per year, but that met with furious opposition from business interests and conservative state attorneys general, who sued to block implementation of the rule. A federal court in Texas invalidated the final rule—three years in the making—just days shy of its effective date on Dec. 1, 2016.


MARCH 2019

DOL releases new proposed overtime rules

After two years of speculation, false starts and hand-wringing, the U.S. Department of Labor has finally published its much-anticipated overhaul of the nation’s overtime rules. Released March 8, these proposed rules are meant to replace the Obama-era rules that never went into effect.

The big news: The DOL wants to raise the minimum overtime salary threshold by 50% from the current $23,660. That means exempt administrative, executive and professional employees will be eligible for overtime pay as long as they don’t earn more than $35,308 per year ($679 per week).

White-collar employees who earn that amount or less will be eligible for overtime pay when they work more than 40 hours in a workweek.

The new threshold is slated to go into effect Jan. 1, 2020.

The change will likely mean that at least one million additional white-collar employees will suddenly qualify for overtime pay. The changes don’t require congressional approval.

There’s more. In order to push the salary level through well before the 2020 election, the DOL is holding back on another controversial change that it expects will be challenged in court—whether and how to automatically raise the salary level by indexing it to inflation or some other measure. Instead, the DOL proposed, separately from these regulations, to place increases to the salary level on a four- year regulatory cycle with an opportunity to review and comment before any future change.

Once the rule is published in the Federal Register, the public will have a relatively brief 60-day window to submit comments. A preliminary public comment period conducted in 2017 drew more than 200,000 responses.

Online resource: Read the proposed rule at www.dol.gov/whd/overtime2019. Members of the public may submit comments on the rule at www.regulations.gov, referring to rulemaking docket RIN 1235-AA20.



DOL plans to issue new OT rules in March 2019

The U.S. Department of Labor says it will propose a new salary threshold for paying overtime to white-collar workers next March. The announcement of a new date for issuing a notice proposed rulemaking came in the DOL’s fall regulatory agenda report, published Oct. 16.

Meeting the March deadline would cap what has so far been a drawn-out process. The DOL originally began seeking public comment on revising the overtime rules in the summer of 2017. The most likely rules revision would raise the salary threshold above its current $23,660 per year. Anyone who makes less than that is eligible for overtime pay when they work more than 40 hours in a workweek.

Secretary of Labor Alex Acosta has previously said he supports raising the salary threshold to somewhere in the neighborhood of $33,000, a figure that roughly corresponds to cost-of-living increases since 2004, when the overtime rules were last revised.


MAY 2018

DOL: Expect new overtime pay rule in 2019

The U.S. Department of Labor plans to wait until 2019 to release new proposed overtime rules for white-collar employees. The announcement, buried deep inside the Trump administration’s spring regulatory agenda document, merely states that the DOL will issue a notice of proposed rulemaking on “01/00/2019″—in other words, sometime next year.

The delay came as a surprise, since the DOL began seeking public input in July 2017 on raising the overtime salary threshold for employees qualifying for the Fair Labor Standards Act’s executive, administrative, professional, outside sales and computer employee exemptions. The deadline for submitting public comments came and went last September. Notices of proposed rulemaking usually follow shortly after an agency has considered public comments.

The current overtime salary threshold of $23,660 was set in 2004. White-collar employees earning less than that per year qualify for overtime pay when they work more than 40 hours in a workweek.

The Obama administration tried to raise the salary threshold to $47,476 per year, but that met with furious opposition from business interests and conservative state attorneys general, who sued to block implementation of the rule. A federal court in Texas invalidated the final rule—three years in the making—just days shy of its effective date on Dec. 1, 2016. Technically, an appeal of that stay remains on file with the 5th Circuit Court of Appeals, but the DOL is unlikely to pursue it.

What would the new rule look like? Labor Secretary Alex Acosta has said he supports raising the overtime salary threshold. In March 2017, during Senate hearings before he was confirmed as Secretary of Labor, Acosta said he endorsed raising the threshold to account for inflation since 2004. That would place the salary threshold somewhere in the neighborhood of $33,000 per year.

Releasing the new notice of proposed rulemaking will trigger another round of public comments, which the DOL must factor into a final rule. If all goes smoothly, expect the new overtime rule to be ready to go into effect in late 2020, sometime shortly after the presidential election—just as the previous attempt to raise the salary threshold was supposed to.


  JUNE 2017  

Acosta: DOL to begin new round of OT rules revision

Brace yourself for another epic do-over of the salary-threshold rules that determine which white-collar workers are eligible for overtime pay.

Labor Secretary Alex Acosta told a congressional committee on June 7 that the Department of Labor would soon issue a “request for information” on revising the overtime rules affecting exempt employees.

An RFI would mark the first step in the complex process of scrapping the Obama administration’s never-enacted $47,476 per year salary threshold and writing a new rule to establish a threshold somewhere between that amount and the current $23,660 per year. Developing the most recent rules took more than two years.

The Obama administration’s overtime rule—which would have taken effect Dec. 1, 2016, if not for a federal court’s temporary injunction—remains stuck in legal limbo until at least June 30. Acosta told Congress he would probably issue an RFI before then.


  FEBRUARY 2017  

Overtime changes still on hold; likely shelved by Trump’s DOL

The controversial changes to U.S. overtime law—on hold since a Texas court’s preliminary injunction in November 2016—are still frozen in the courts. Legal proceedings are traveling on parallel tracks. The 5th Circuit Court of Appeals will soon hear an appeal of the preliminary injunction that prevented the rules from taking effect on Dec. 1, 2016. Meanwhile, the original case trudges on in the U.S. District Court for Eastern Texas.

It’s possible, but unlikely, the U.S. Department of Labor’s overtime changes could be revived in these court proceedings. It’s more likely that those new rules will be quietly put out to pasture by the Trump administration’s DOL. Look for the DOL to offer its own, more modest, rewrite of the overtime rules this year or next. Expect those new changes to include a much smaller increase in the overtime salary threshold than the jump to $47,476 pushed by Obama.


  NOVEMBER 2016  

New OT rules temporarily blocked, won’t take effect Dec. 1

A federal judge in Texas has temporarily blocked the Department of Labor’s new white-collar overtime rules from taking effect on Dec. 1. A preliminary injunction issued Nov. 22 means employers only have to pay overtime to exempt workers who make less than $23,660 annually—not $47,476, the salary threshold set out in final rules issued in May.

U.S. District Judge Amos Mazzant’s ruling for now denies overtime pay to an estimated 4.2 million additional workers. It throws into confusion HR and payroll plans to implement the new rules in just a few days.

Employers should proceed with caution, advises Steve Pockrass, who chairs the wage-and-hour practice at the Ogletree Deakins law firm. Since there is no guarantee the new OT rules are gone forever, continue planning for eventual implementation.

Pockrass says employers “that already have made changes will need to decide whether it makes business sense to suspend, alter or reverse those changes pending any subsequent legal developments.”

Thousands of employers have spent recent months raising white-collar workers’ pay, changing exempt/nonexempt classifications, rewriting job descriptions and altering schedules and reporting relationships to adjust to the new salary threshold.

Many of those changes will be difficult to undo, and smart employers are taking a wait-and-see approach. Reversing course too soon could badly damage employee morale.

Mazzant’s order, although temporary, signals that he believes 21 state attorneys general and a coalition of business groups that sued to stop the overtime rules have a strong case. “The State Plaintiffs have shown a likelihood of success on the merits because the Final Rule exceeds the Department’s authority,” Mazzant wrote.

The lawsuit, filed in the U.S. District Court for the Eastern District of Texas, argues that the Fair Labor Standards Act does not allow the DOL to rely solely on the salary threshold to decide who is eligible for overtime pay. The suit contends any overtime pay revision must also address the duties test that defines who qualifies for the FLSA’s executive, administrative, professional exemptions.

Mazzant wrote that the new overtime rules’ “significant increase to the salary level creates essentially a de facto salary-only test.”

The new rules explicitly left the duties test unchanged.






Download this guide to the new overtime changes

The 2016 Overtime Rules: How to Comply is an up-to-the-minute reference guide to total FLSA compliance. It breaks down the new regulations into plain English and includes checklists and exemption tests so you don’t make a single classification misstep. (Note: The guide has been updated with advice based on the court injunction that blocked the OT rules from taking effect on Dec. 1, 2016.)

Download it now

Check out the changes summarized in a single chart




  MAY 2016  

Q&A: Understanding the new changes to federal overtime law

On May 18, the U.S. Department of Labor (DOL) unveiled its long-awaited changes to the Fair Labor Standards Act’s overtime rules. Here is a Q&A on those changes, adapted from the DOL’s fact sheet:

1. What is the purpose of the DOL’s final overtime rule?

This final rule updates the regulations for determining whether white-collar salaried employees are exempt from the FLSA’s minimum wage and overtime pay laws. Employees are exempt if they are employed in a bona fide executive, administrative or professional capacity.

2. Who qualifies for an exemption?

To qualify for exemption, a white-collar employee generally must be salaried and be paid more than a specified weekly salary level. Current law (expiring on Dec. 1, 2016) sets that salary threshold at $455 per week ($23,660 annually). Exempt employees also must primarily perform executive, administrative or professional duties, as defined in the duties test.

Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers and lawyers). The DOL’s regulations also provide an exemption for certain highly compensated employees (HCEs) who earn above a higher total annual compensation level ($134,004 under this final rule) and satisfy a minimal duties test.

3. What are the significant changes to the overtime regulations?

The new rules increase the standard salary level from $455 per week ($23,660) to $913 per week ($47,476). Why that new number? The DOL set the new salary level equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South.

To prevent the salary limit from becoming outdated again, the new rules create mechanisms to automatically update the salary thresholds every three years. That means the salary threshold will next be changed on Jan. 1, 2020.

4. When will these changes  take effect?

The effective date of the final rule is Dec. 1, 2016. On that day, the new standard salary level ($47,476 per year) will take effect. Future automatic updates will occur every three years.

5. Did the DOL make any changes to the duties tests?

No, the DOL is not making any changes. The agency said it believes the increase to the salary level, coupled with automatic updating in the future, will address concerns that some workers who satisfy the duties test should be entitled to overtime pay because they are performing substantial amounts of overtime-eligible work (e.g., operating cash registers, stocking shelves, etc.). Plus, many employers argued during the rulemaking phase that changes to the duties test would be disruptive.

6. Can employers use bonuses to satisfy the new salary level test?

Yes. The DOL is changing the regulations to allow nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary test requirement. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability. To credit bonuses toward the salary limit, they must be paid on a quarterly or more frequent basis.

7. How will employers implement the updated salary threshold?

Employers have a range of options. The DOL says that for each affected employee newly entitled to overtime pay, employers can:

Increase the salary of an employee who meets the duties test to at least the new salary level ($47,476) to retain his or her exempt status;

  • Pay an overtime premium of one-and-a-half times the employee’s regular rate for overtime hours worked;
  • Reduce or cut overtime hours;
  • Reduce the amount of pay allocated to base salary and add pay to account for overtime for hours worked over 40 in the workweek; or
  • Use some combination of these responses.

The circumstances of each affected employee will likely impact how employers respond to the final rule.



  MAY 2016  

New overtime rules arrive; compliance date set

The Department of Labor’s long-awaited update to the Fair Labor Standards Act’s overtime rules has effectively doubled the salary threshold at which most salaried workers become exempt from having to be paid overtime, raising it from $23,660 to $47,476 per year. The new rules become effective December 1, giving employers a six-month breather as they prepare to overhaul their policies.

The salary threshold—lower than the $50,440 proposal originally released by the White House—will automatically update every three years based on wage growth, so as to keep current with inflation rates. It will be tied to the lowest-wage region of the country.

When calculating income, employers will be permitted to factor in nondiscretionary bonuses, incentive payments and commissions, which can satisfy up to 10 percent of the new standard salary level.

Not changed in the DOL’s rules revision: the duties test that determines exemption from overtime pay for executive, administrative, learned professional, computer and outside sales employees.  

Under the new rules, millions more workers are expected to be made eligible for time-and-a-half pay when they work more than 40 hours per week. The changes are expected to have a particular effect on retail and restaurant workers who tend to perform both managerial and hands-on duties, and who were often previously considered exempt from extra pay.



  FEBRUARY 2016  

DOL says final OT rule to be published in July, take effect in 60 days

July 2016 is the target date for release of the U.S. Department of Labor’s final regulations that increase the guaranteed weekly salary employees must earn to be considered exempt employees under the Fair Labor Standards Act (FLSA). On Feb 17, DOL Solicitor of Labor Patricia Smith announced at an American Bar Association conference that the white-collar exemption regulations will be published in July, with an effective date 60 days after publication. (Note: The last time the DOL rewrote exemption rules in 2004, the rules became effective 120 days after publication.)

You still have time to formulate a strategy to minimize the impact the final regs will have on your bottom line.

Who gets a raise and who doesn’t? As proposed, the regs would more than double the weekly salary that exempt employees must earn to $921, from the current $455. Annualized, that would be $47,892. Worse: The regs would also inflation-adjust this amount, so the line would move every year.

You first need to identify how many employees could be affected. It will cost very little to give raises to employees who are already close to the $48,000 mark. Pitfall: Unless the final regs allow you to count bonuses as part of employees’ weekly pay, which you can’t do right now because they need to be paid a guaranteed weekly salary, employees will also have to receive raises every year, to beat the inflationadjusted amount.

Who pulls the hours and who doesn’t? Employees whose salary doesn’t come close to the $48,000 mark—your assistant and middle managers—are in a tougher spot. You can raise the salaries of some and reclassify others as nonexempt. But whom? Not every exempt works lots of overtime hours a week, so it’s crucial to identify how many hours a week these employees work.

It may pay to reclassify those who work a lot of overtime. Reason: If they’re working a lot of overtime, they may not, in fact, be exempt. Take the extra step of evaluating whether these employees meet the FLSA’s duties test for their positions. Key: Set hourly pay rates for those who will be reclassified. Idea: If you lower their base rate of pay, you may be able to make up the difference by guaranteeing them overtime and bonuses.

How do we communicate the change? This is a sensitive area, since not everyone will be getting raises. Employees who are reclassified as nonexempt may feel like they’ve been demoted. And they may be even more unhappy than a bump to their egos, depending on how many managerial perks they’ll lose, such as PTO leave.

Be tactful in discussions with employees. Recommended: One-on-one meetings with each employee who will be reclassified. Tell them that under the old rules they were exempt, based on their salary, but their reclassification is a result of another change in the regulations. That will avert questions about unpaid overtime for the past three years. Visual aids may help. Prepare a side-by-side chart for each employee that shows their old pay and their new pay, with projected overtime and bonuses factored in.



  JULY 2015  

Online Resources

The U.S. Department of Labor has proposed the biggest overhaul to U.S. overtime law in history (see below). Public comments on the proposal are being accepted by the DOL until Sept. 4, 2015. The final regulations are expected to be released by the end of 2015, with an effective date in spring or summer 2016. Here are some online resources on the proposal:



HOW TO COMMENT ON THE PROPOSAL: To submit your comments about the regulation online by Sept. 4, 2015, visit the Regulations.gov page for Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.



  JUNE 2015  

DOL officially unveils proposal; calls for doubling of salary threshold to $50K

The Obama administration proposed on June 30 to more than double the salary threshold that makes white-collar managers eligible for overtime pay. The Department of Labor’s long-awaited rewrite of the overtime rule for salaried administrative, executive and professional employees would raise the bar to $50,440 per year in 2016, up from the current $23,660.

The DOL estimates the move will make at least five million more workers eligible for overtime pay if they work more than 40 hours in a week.

The proposed rule doesn’t change the duties test that defines what constitutes administrative, executive and professional work, but leaves open the possibility of doing so in the future.

Business groups immediately blasted the proposed new salary basis, saying it would cost too much and cause job cuts. “There simply isn’t any magic pot of money that lets employers pay more just because the government says so,” said a statement from the National Retail Federation.

“Employers will be forced to limit hours for their workers and eliminate management positions,” said Beth Milito, head attorney for the National Federation of Independent Business.

A statement from the Society for Human Resource Management said, “It is clear that this rule will affect nearly every employer in every industry and sector.”

Compensation experts predicted that employers would explore a variety of strategies to minimize overtime pay. Some employees’ pay could actually decline, according to Cara Woodson Welch of the WorldatWork compensation association. “If this regulation were to be finalized, companies will be forced to move employees from exempt to nonexempt status, and the change in this status will likely limit employees’ hours, wages, workplace flexibility and growth potential,” Welch said.

The DOL will begin seeking public comments on the proposed rule after it is published in the Federal Register. The Obama administration predicts that the new rule will go into effect on Jan. 1, 2016. However, HR and business experts think final revisions could take up to a year.

In the meantime, employers face a host of questions:

  • How many of our current workers will suddenly become eligible for overtime if the proposed rule is enacted?
  • Do we have flexibility to adjust schedules and hours to minimize the impact?
  • Could we avoid having to pay overtime by using bonuses to raise compensation above the new threshold?
  • How will the proposed rule affect our hiring and promotion plans?
  • How will it affect payroll, scheduling and performance-management processes?

The Obama administration arrived at the $50,440 threshold by calculating the 40th percentile of projected 2016 weekly earnings for all full-time, salaried workers. The new salary basis works out to $970 per week, compared to $455 currently.

The proposed rule calls for annual adjustments of the salary threshold pegged to that 40th percentile standard.

For now, the rule doesn’t propose changing the duties tests used to determine if a particular employee fits into exempt administrative, executive or professional categories.

5 things employers should do now 

1. Review current salaries for all exempt employees.

2. Determine which employee salaries you can raise to retain exempt status and which you can’t based on your company’s labor budget.

3. Analyze how many hours exempt employees now work and what it would cost if their current salary is converted to an hourly figure and they continue to work the same number of hours.

4. Decide whether you will lower the hourly rate when you convert from exempt to hourly status so that total earnings remain the same.

5. Don’t forget to consider morale if you plan to slash that hourly rate.

Learn more about the proposed rule at www.dol.gov/whd/overtime/NPRM2015/.



  JUNE 2015 

Reaction to the DOL’s overtime bombshell

Converting salaried jobs to hourly. “When people are switched to hourly, they don’t understand their value. It’s a morale hit. Too many people think that hourly equals not important. And that’s going to require a bit communication and education effort by employers.” – Marah Rutski, HR director, CyberPoint International, Baltimore   

* * *

Silver lining of the new rules. “If you have employees who are improperly classified under the current regulations, this will be your lowest risk time to change those exemptions because you can blame it on the government … Your message is that we’re making this change because the government has changed the classification rules … So these (new regulations) are not just a burden, but a golden opportunity.” – Tammy McCutchen, principal, Littler’s Workplace Policy Institute 

* * *

Managing C-suite expectations. “Expect your CEO, CFO and COO to come to you soon and ask you to make it all cost neutral, which won’t be easy. This is a massive change … Look at your job descriptions; that’s a key part of this.” – Mark Toth, chief legal officer, Manpower, Inc.

* * *

Surprise coming in the final regulations?  “The jury is really still out on what the DOL will do with the duties test … and that’s concerning.” – Lisa Horn, SHRM director of congressional affairs

* * *

Economic impact on employers. “There simply isn’t any magic pot of money that lets employers pay more just because the government says so.” – National Retail Federation

* * *

Implementation could take a year (or more). “(The Obama administration) wants to get this finalized before the next president gets into office.” – Michael Eastman, employment lawyer, Norris, Tysse, Lampley & Lakis




MARCH 2015

Does your workplace have managers who are paid less than $50,000 and are currently exempt from overtime law? If so, start running the numbers to see how much it would cost if those became hourly employees and, thus, eligible for overtime.

Release of the anxiously awaited changes to federal overtime law—originally set for February—has been delayed until May or June. The DOL is revising the Fair Labor Standards Act (FLSA) executive, administrative and professional exemptions. The likely effect: Millions more managerial employees will be eligible for overtime pay. Expect these changes:

The Salary Limit. Currently, FLSA rules say that white-collar employees who are paid on a salary basis and earn less than $455 per week ($23,660 annually) automatically qualify for overtime pay. Attorney Tammy McCutchen, who ran the DOL’s Wage & Hour Division when overtime rules were last rewritten in 2004, predicts the salary basis “will be somewhere between $40,000 and $50,000.”

The Duties Test. Until now, the duties test has ruled out overtime pay for employees who perform even one of the exempt duties of an executive, administrative or professional employee. But that rule will soon become much more employee friendly. One scenario reportedly under consideration: requiring overtime pay unless managers spend at least half their workweek doing managerial tasks.

Advice: Now’s a good time to start reviewing your employee classifications and job descriptions. Your goal: Determine how your pay systems will be affected if many exempt employees suddenly become nonexempt.

Timing note: If the new rule is released in June, expect it to go into effect in August 2016.


January 2015

The U.S. Department of Labor says it expects to issue its long-awaited changes to overtime pay regulations by the end of February 2015. The DOL made that announcement in a filing with the Office of Management and Budget’s Office of Information and Regulatory Affairs.

Under current rules, employers can declare certain executive, administrative and professional workers as exempt from overtime pay. However, those rules says that white-collar employees who are paid on a salary basis and earn less than $455 per week ($23,660 annually) automatically qualify for overtime pay. The DOL is expected to raise that salary threshold, plus make other changes to the regulations.



April 2014

FLSA update looms: What will it mean for overtime pay?

overtime payPresident Obama has ordered the Department of Labor (DOL) to update the Fair Labor Standards Act provisions that determine which salaried employees are exempt—not eligible for overtime pay—and which are nonexempt—that is, eligible for overtime if they work more than 40 hours per week. The regulations in question define what are known as the executive, administrative and professional exemptions.

The overtime regulations were last updated in 2004 during the George W. Bush administration. With more changes likely on the way (see below), let’s take a look at what the executive, administrative and professional exemptions currently require.

To qualify as exempt, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. (Before 2004, the weekly threshold was just $155 per week.)

Job titles do not determine exempt status.

For an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the DOL’s regulations.

Executive exemption

To qualify for the executive exemption, all of these tests must be met:

  • The employee must be compensated on a salary basis at a rate not less than $455 per week.
  • The employee’s primary duty must be managing the enterprise, or one of its customarily recognized departments or subdivisions.
  • He or she must direct the work of two or more full-time employees.
  • The employee must have the authority to hire or fire other employees, or his or her suggestions and recommendations about changing the employment status of other employees must be given particular weight.

Administrative exemption

In addition earning no less than $455 per week, to qualify for the administrative exemption, all of the following tests must be met:

  • The employee’s primary duty must be performing office or non-manual work directly related to the management or general business operations of the employer or its customers.
  • The employee’s primary duty includes exercising discretion and independent judgment with respect to matters of significance.

Professional exemption

There are two types of exempt professional employees: learned professionals and creative professionals.

In addition to earning no less than $455 per week, a learned professional must perform work that requires advanced knowledge, is predominantly intellectual and which requires discretion and judgment.

Creative professionals’ primary duties must be performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.


What’s likely to happen: lengthy process to rewrite regs

It will take the Labor Department months to update the overtime rules for exempt employees. There may be political pressure to release proposed regs before the November midterm elections, to give Democratic candidates a wedge issue against Republicans.

Expect most of the focus to be on raising the salary threshold above the current $455 per week, not on substantially revising work criteria.

A lengthy public comment period will follow. Business groups will probably vigorously oppose drastic changes.

March 19, 2014

Obama wants to expand FLSA overtime rules

President Obama on March 13 ordered the U.S. Department of Labor to propose rules to “update and modernize America’s overtime pay system, so that millions of our nation’s salaried workers will have the protections of overtime pay.”

The process, which will take months, could make overtime pay available to more management employees who are now considered exempt under the Fair Labor Standards Act (FLSA).

Currently, executive, administrative and professional employees are exempt from the FLSA’s overtime pay requirements if they earn more than $455 per week. The administration will likely move to raise that bar, making as many as 3.1 million more low-paid supervisors eligible for overtime.

“This is part of President Obama’s promised ‘year of action’ and part of his plan to solve income inequality in America,” said Greg Guidry, of the Onebane Law Firm in Louisiana. “The good news for employers is that the directive will require administrative action, which will involve a proposed notice and a comment period. The bad news is that it will be yet another increase in the cost of doing business—either in the form of higher salaries or more overtime.”

Announcing the update initiative, Obama said, “[A]n exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year. So if you’re making $23,000, typically, you’re not high in management. If your salary is even a dollar above the current threshold, you may not be guaranteed overtime.”

“At this point, we know that the administration is focusing on the salary basis test” of $455 per week, said Alfred B. Robinson Jr., an attorney with Ogletree Deakins. “We would anticipate that indexing the salary basis amount to the consumer price index or some comparable index is something that the administration will consider closely.”


Washington reacts: What FLSA exemption update order means

On the current FLSA exemption rules

“In some cases, this rule makes it possible for workers earning a salary to actually be paid less than the minimum wage. And it means that business owners who treat their employees fairly can be undercut by competitors who don’t. That’s not right.” — President Obama

“If you don’t have a job, you don’t qualify for overtime. So what do you get out of it? … Nothing. The president’s policies are making it difficult for employers to expand employment.” — Rep. John Boehner, Speaker of the House

Will new OT rules help the economy?

“We understand the administration is looking for ways to put more money in people’s pockets, but the only way to do this is to grow the economy and create more jobs. Adding more burdens to employers will not accomplish that goal.” — Marc Freedman, executive director of labor law policy, U.S. Chamber of Commerce

“This will help to build an economy that honors work, not one that steals from workers. While workers are denied overtime pay that they have earned, compounding flat and falling wages, the bonus pool for Wall Street grew from $1.9 billion in 1985 to $26.7 billion in 2013.” — AFL-CIO President Richard Trumka

Why change the regulations now?

“There’s no economic advantage to doing it now. The motivation has to be political.” — Douglas Holtz-Eakin, president, American Action Forum

“What we know right now is the threshold has been eroded by inflation, and there are 3.1 million people who, if the threshold had kept up just with inflation, would automatically be covered by overtime provisions.” — Betsey Stevenson, White House Council of Economic Advisers



White paper: Complying With the FLSA Overtime Rules

In 2004, new U.S. Labor Department regulations took effect that enacted the most dramatic changes to federal overtime law in more than 50 years.

By updating certain provisions of the Fair Labor Standards Act (FLSA), the agency redefined which white-collar employees are “exempt” under the FLSA (i.e., not eligible for overtime) and which are “nonexempt” (eligible for overtime). Those federal rules clarify and alter both the “salary test” and the notoriously confusing “duties tests” that are used to determine employees’ exemption status.

Our white paper, Complying With the FLSA Overtime Rules, offers a detailed breakdown of those exemption categories, adapted from U.S. Labor Department fact sheets.