The US Department of Labor unveiled its new proposal for updating overtime regulations last Thursday, offering a version of the rule that would expand overtime eligibility to more employees, but millions fewer than the one the Obama administration attempted to enact in 2016. The proposed rule raises the salary threshold at which executive, administrative, or professional employees become exempt from overtime requirements from $23,660 to $35,308: higher than many businesses expected but a far cry from the $913 per week, or $47,476 per year, set by the previous administration, Proskauer attorney Allan Bloom notes in a blog post summarizing the finer points of the proposal. Up to 10 percent of that minimum can be satisfied through non-discretionary bonuses, incentives, or commissions, or through “catch-up” payments made at the end of the year, which effectively reduces the weekly minimum further.
Another exemption for highly compensated employees would increase from $100,000 to $147,414, which is actually higher than the Obama administration’s threshold of $134,004. The new proposed figure equates to the 90th percentile of full-time salaried workers nationally, projected forward to 2020. Employees are exempt from overtime if they meet this higher level of compensation as long as they are primarily engaged in office work and regularly perform at least one of the duties of an executive, administrative or professional employee. If the proposed rule comes into force as written, employers of workers who are no longer exempt based on their level of compensation will have to decide whether to pay them overtime or bump their salaries up over the threshold. “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,” Seyfarth Shaw attorney Alexander Passantino tells Lisa Nagele-Piazza at SHRM.
One feature of the Obama-era rule, subsequently struck down by a federal judge in 2017 before coming into effect, to which employers objected was its scheme for automatically increasing the threshold every three years based on inflation. This was intended to ensure that lack of legislative or regulatory action did not result in an outdated minimum: The threshold had not been updated since 2004, which was the first change since 1975. The new proposal does not include automatic increases. Instead, the notice of proposed rule-making expresses the department’s “intention to propose updates to the earnings thresholds every four years. This would provide clarity and help workers and employers by having a regular and orderly process for future changes.”
The new proposal also does not change the duties tests for overtime eligibility, Ryan Mick, an attorney with Dorsey & Whitney in Minneapolis, tells SHRM’s Allen Smith, which “would have required many employers to undertake a far more complex analysis to determine exempt status for many employees.” Still, it may be a good time for employers to make sure their exempt employees meet the existing criteria: