Department of Labor Releases Proposal for New Overtime Rule

Employment Law Alert

The U.S. Department of Labor recently announced a Notice of Proposed Rulemaking that — if adopted – will render a significantly higher number of American workers eligible for overtime pay. The Rule could make an estimated 1.3 million employees (who currently are “exempt” from overtime pay) eligible for overtime pay as “non-exempt” employees.

The Fair Labor Standards Act (FLSA) requires covered employers to pay certain employees, who work more than 40 hours in a week, overtime premium pay at least 1.5 times their regular rate of pay.

The Department’s proposed rule would raise the currently enforced salary level for exemption, thus extending overtime protection to more workers. The Department currently enforces a salary level set in 2004. The salary threshold under the current law is $455 per week ($23,660 annually). Under the new rule, employees with a salary below $679 per week (equivalent to $35,308 per year) will have to be paid overtime if they work more than 40 hours per week.

This new proposal discusses the Department’s intention to propose updates to the earnings threshold every four years. Unlike the 2016 proposal, however, the new proposal does not call for automatic adjustments to the salary threshold.

In addition to the above, the proposed new rule includes:

  • Under the current rule, highly compensated employees are exempt from overtime. The new proposal includes an increase to the total annual compensation requirement for “highly compensated employees” from the currently-enforced level of $100,000 to $147,414 per year.
  • A commitment to periodic review to update the salary threshold.
  • Employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions), that are paid to employees, to satisfy up to 10 percent of the worker’s standard salary level in determining whether employees meet the new salary threshold.
  • No changes overtime protections for:
    • Police Officers
    • Fire Fighters
    • Paramedics
    • Nurses
    • Laborers including: non-management production-line employees
    • Non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers
  • No changes to the job duties test.

It is important for covered employers to stay informed and be aware of these potential changes. However, there is no need for employers to update their compensation structures just yet. As we learned from the 2016 proposed rule, there is no guarantee that this proposed rule will be finalized. The intention is to have this new rule finalized by the end of this year. Similar to the 2016 rule, litigation over the new rule is likely, which may delay implementation. Lamb McErlane PC will stay apprised of further developments and will keep you informed.

Mary-Ellen H. Allen is co-chair of the Employment Law Department of Lamb McErlane PC and a member of the Litigation Department. She concentrates her practice in employment law and commercial litigation.

This publication is for general information and should not be construed as legal advice on any subject matter.