NEW OVERTIME RULE PENDING – NEW MINIMUM SALARY PROPOSED

3/8/2019 | Articles

We have known that this was coming for a while – the change to the overtime laws which would increase the minimum salary an employee must be paid for that employee to be exempt from overtime payments, otherwise known as the “salary threshold.” If an employee performs the tasks of a manager, licensed professional, or an administrator AND the employee is paid at least the “salary threshold” amount, that employee can be exempt from overtime – meaning that the employee will not be entitled to overtime payments regardless of how many hours the employee works.

The United States Department of Labor has proposed increasing the salary threshold from the current level of $23,660/year to $35,308/year (or $679 per week). There is no set effective date yet, but the new salary threshold could take effect as early as January 1, 2020. The proposal is just that – a proposed Rule upon which the public can comment for approximately 60 days before the Rule is formalized and becomes law.

How we got here, and perspective on the amount of the change

Under the law, employees who make less than the $23,660 salary threshold must be paid overtime if they work more than 40 hours per week regardless of what job duties the employee performs. For example, a shift manager who makes $20,000 per year is entitled to overtime if the manager actually works over 40 hours in a week, even though the employee schedules, supervises, and can discipline employees. The current $23,660 salary threshold has been in place since 2004, and there has been discussion about changing the amount for years.

In 2016, the Department of Labor (DOL) decided to change the Rule, and changed the salary threshold to $50,440/year, or $970 per week, with automatic raises to that level in ensuing years. Employers were outraged by the drastic change, and a legal challenge was filed to the Rule. The $50,440 salary threshold was supposed to take effect on January 1, 2017 but on November 22, 2016, after many employers made policy and salary changes to deal with the new Rule, a Federal Judge in Texas blocked the Rule from taking effect. When the new administration took office in January 2017, the DOL agreed that the $50,440 salary threshold was too high and agreed to revisit the issue. In 2017, the DOL sought input from the public in a Request for Information and yesterday, the DOL announced that it intends to set the salary threshold at $35,308 per year. Unlike the $50,440 2016 Rule, there are no proposed automatic increases to that number so if approved, the $35,308 number will remain in place indefinitely.

How employers are affected and action steps

Employers who have “exempt” employees (i.e. employees who do not get paid overtime) need to look at those exempt employees and determine whether any of those employees now will fall below the salary threshold and be eligible for overtime. If an employee now will become overtime eligible, the employer may need to adjust the employee’s schedule to eliminate or substantially minimize overtime. If the employee’s overtime cannot be minimized or eliminated by schedule management and the employee otherwise meets the requirements for overtime (i.e., the employee truly is a manager, etc.), the employer should analyze whether it would be more cost effective to give the employee a raise rather than pay overtime. For example, a manager who makes $30,000/year and regularly works 10 hours of overtime a week could earn more than $10,000 per year in overtime but if the employee’s salary were increased to the new salary threshold of $35,308/year, the manager (if the manager also meets the duties requirements to be exempt from overtime) would not be paid any overtime and the employer’s wage costs for that employee would remain at a predicted, budgeted level. Employers certainly must make an individualized analysis, but planning for the impending change should start now before year end budgeting begins.

Employers also should use the Rule change as a time to review how the employer classifies its employees as being eligible for overtime or not eligible. Paying an employee a salary does not mean that the employee is not eligible for overtime. MANY employers fall into that “salary” trap and think that they do not have to pay overtime if their employees are paid a salary. In reality only a few categories of employees are “exempt” from being paid overtime. Employers who realize that they may have fallen into the “salary” trap should use the new Rule as a gateway to make changes to pay structures, start paying overtime when due, and make schedule changes, etc. to minimize the amount of overtime which needs to be paid.

ELDI can help employers get out of the “salary” trap and deal with the impending change to the salary threshold. Use our contact link on the www.ELDI.legal site, email us at eldi@kaplaw.com, or call Kim Russell at (610) 941-2541 at any time.

Please feel free to share this update with your network! We all will be affected by the change, and if you would like to comment on the proposed Rule, you can submit a comment electronically at www.regulations.gov, using the rulemaking docket identifier RIN 1235-AA20.