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Department of Labor’s Proposal to Expand Overtime Pay

Earlier this year, the Department of Labor (DOL) released a proposal to update regulations defining which white collar workers are protected by the minimum wage and overtime standards of the Fair Labor Standards Act (FLSA).  After a providing the public a chance to comment on the proposed rule, the DOL recently revealed its final new rule which will extend overtime protections to more than one million (1,000,000) workers who are not currently eligible under federal law.

I.  Fair Labor Standards Act

The FLSA guarantees a minimum wage and overtime pay at a rate of not less than one and one-half (1 ½) times the employee’s regular rate for hours worked over forty (40) in a workweek. While these protections extend to most workers, the FLSA does provide a number of exemptions.

The exemption for executive, administrative, professional, outside sales, and computer employees is oftentimes referred to as the FLSA’s “white collar” exemption.  The white collar exemption was premised on the belief that the exempted workers earned salaries well above the minimum wage and enjoyed other privileges, including above-average fringe benefits, greater job security, and better opportunities for advancement, setting them apart from workers entitled to overtime pay.

II.  Current “White Collar” Exemption Requirements:

To be exempt from overtime pay, an employee must generally meet the following three-part test:

  1. The “Salary Basis Test”
    1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
  2. The “Salary Level Test”
    1. The amount of salary paid must meet a minimum specified amount-currently Four Hundred Fifty-Five Dollars ($455) per week or Twenty-Three Thousand Six Hundred Sixth Dollars ($23,660) per year for a full-year worker; and
  3. The “Duties Test”
    1. The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations

III.  DOL’s New Overtime Rule

The DOL’s new Overtime Rule made the following updates to the current rule:

  1. Workers who do not earn at least Thirty-Five Thousand Three Hundred Eight Dollars ($35,568) a year—or Six Hundred Seventy-Nine Dollars ($684) a week—will now have to be paid overtime, even if they’re classified as a manager or professional.
  2. Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to ten percent (10%) of the standard salary level.
  3. No changes to the duties tests were made.
  4. The new rule will become effective on January 1, 2020.
  5. Finally, while the Department of Labor intends to update the salary threshold more regularly in the future, no automatic adjustments of the salary threshold will be made with any such increases continuing to require the notice-and-comment rulemaking process.                 

With a drastic change to the salary level test of the overtime rule being effective as of January 1, 2020, please contact our office to assist you analyze the current salary and duties of all employee in order to determine the potential financial and administrative impact of this change to the law.  We are happy to help your business decide whether it makes more sense to pay lower income office workers overtime or to raise their income in a sufficient amount to comply with the new law in 2020.