The U.S. Department of Labor (DOL) has proposed a new rule affecting overtime eligibility.
The salary threshold for employees eligible to collect time-and-a-half pay for hours worked over 40 in a work week, would increase but would still be fewer than the one the Obama administration attempted to enact in 2016 – which was struck down by a federal district judge in Texas before it was to have taken effect.
Under the new proposal exempt employees would have to earn at least $679 a week or $35,308 a year to be classified as exempt from the overtime requirements of the Fair Labor Standards Act. That is higher than the current level in which employees must earn at least $455 a week or $23,660 a year, the threshold that has been in place since 2004.
Executive, administrative or professional employees would become exempt from overtime requirements from $23,660 to $35,308, a big difference from the $913 per week - or $47,476 per year - set by the previous administration.
In addition to the salary test, exempt employees must also pass the duties test - in other words, they must perform work that is executive, administrative, or professional.
Employers would be able to satisfy up to 10 per cent of the salary minimum through nondiscretionary incentives and/or commissions that are paid annually, more frequently, or even in a catch-up payment at the end of the year.
The threshold for exemption as a ‘highly compensated employee’ would rise to $147,414 in total annual compensation - higher than the Obama administration’s threshold of $134,004.
If the proposal comes into force, the employers of workers who are no longer exempt - based on their level of compensation - will have to decide whether to pay overtime or increase the salaries to over the threshold.
Kara Shea - an attorney with Butler Snow LLP in Nashville, Tennessee and coeditor of Tennessee Employment Law Letter - said:
“Increasing pay will not be enough if the employee is not performing exempt job duties. Employers should first make sure the employees are correctly classified to begin with, based on job duties, before they decide whether to preserve the exemption by raising pay.”
Attorney Alexander Passantino of Seyfarth Shaw, commented:
“Paying overtime on $125,000 per year is a huge economic burden, but it still may be less expensive than going to the new level.”
The new rule will be up for public comment for 60 days and could be revised or challenged in court again - but as it calls for less drastic change than the previous proposal, it is thought more likely to succeed.
