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New Proposed Overtime Rule: 5 Important Questions You Should Be Asking

On March 7, 2019, the U.S. Department of Labor (DOL) announced its proposed rule to increase the standard salary threshold under the Federal Labor Standards Act (FLSA). See this post for updated information.

In March, the DOL is expected to publish a proposed rule that increases the salary level for exempt employees, making some previously salaried U.S. workers eligible for overtime pay. While the agency hasn’t yet released the proposed annual salary threshold number, Secretary of Labor Alexander Acosta has provided estimates close to $33,000 annually ($634.61 per week).

That’s far from the proposed $47,476 annually ($913 per week) – salary threshold increase proposed by the U.S. DOL under the Obama administration and invalidated in 2017. However, Acosta’s estimate still is roughly $10,000 higher than the current threshold of $23,660 annually ($455 per week). That’s why it’s important that businesses begin to think about what an increase in the salary threshold means for their employees and their overall organization.

However, the salary threshold increase could be just the tip of the iceberg. The Obama-era rule also included provisions with far-reaching effects, that – had they come to pass – would have impacted how businesses structured and paid their entire workforce.

Assess and plan

In the spirit of learning from history with the intent to avoid repeating it, we’re using those past provisions as a guide to help you assess the potential impact the proposed rule could have on your business. Asking yourself the following questions as you review the rule will help you have informed discussions with company leadership. It also may pinpoint areas you want to address in providing effective feedback to the DOL during its open comment period in order to influence the final rule.

  1. How will commissions and bonuses count toward satisfying the new salary threshold? If you have – or are planning to implement – a pay structure that includes bonuses and commissions, it’s important to understand how those payments can help you meet minimum salary requirements.
  2. Does the salary threshold increase also apply to highly compensated employees? The current salary threshold for highly compensated employees is $100,000 annually ($1,923.08 per week). If the salary threshold for this group increases as well, bridging the gap could be expensive. Be sure to understand how the proposed rule handles compensation for these employees.
  3. How will salary threshold increases occur going forward? As part of the Obama-era rule, the DOL proposed the salary threshold be adjusted automatically, every three years, with no opportunity for public comment. Even though it didn’t come to pass, knowing early on how potential increases will be handled will empower your business to provide valuable feedback.
  4. Are there changes to duties tests? According to Allan Bloom, attorney and leader of Proskauer’s Wage and Hour Practice Group, the new proposed rule could include “more modern examples of how various exemptions might apply in today’s workplaces.” Understanding how changes to duties tests could impact exemption may change how your business chooses to comply with future salary threshold requirements.
  5. Are there special conditions that might apply to my business? The Obama-era rule did not make special provisions for small businesses, retail establishments, restaurants and nonprofits, even though they likely would have been hit hardest by the increase. It will be interesting to see if the agency heeded the feedback it received from these industry groups in 2016 and allowed that to influence the new, proposed rule.

While it’s hard to pinpoint exactly what the proposed overtime rule will contain, critically evaluating it can help your business avoid any surprises when creating your compliance plan. It also can ensure any discussions you’re having about the rule and its impact on your business are comprehensive, so you can start formulating an effective game plan proactively.

How to prepare now

Brush up on local and state laws on minimum salary requirements and overtime protections. You also might consider conducting an audit of your current workforce to get a big-picture view of:

  • the number of exempt employees whose annual salaries are between $30,000-$35,000
  • estimate the number of hours over 40 they are working in one week (a continuous seven-day period)
  • confirm those employees’ job descriptions and duties are accurate

This audit can help you understand just how many employees may be impacted by the proposed rule, and to what degree the proposed rule – and all of its provisions – could change how you choose to compensate your workforce.

We’ll continue to cover developments surrounding this proposed rule, so check back frequently or subscribe.

This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.