The rule, last revised in 2019, will be open for public comments soon.
09/06/2023 10:55 A.M.
3.5 minute read
Since the U.S. Department of Labor (DOL) announced proposed changes to its overtime rule last week, legal experts say businesses should review their overtime policies and plan for compliance, despite the expected legal challenges to the rule after it is finalized, according to an article from the Society of Human Resource Management (SHRM).
Why?
The DOL’s rule in 2016 was challenged in court for its high salary threshold and blocked by a federal judge, but the department moved forward with an update that was finalized in 2019, prompting accounts receivable management companies to review and update overtime and employee exemption policies.
“In a final ruling on the 2016 overtime rule on Aug. 31, 2017, a federal judge said the … DOL didn’t have the authority to set a salary threshold so high that it effectively eliminates the duties tests,” according to the SHRM article.
The current Notice of Proposed Rulemaking (NPRM) would update the regulations under the Fair Labor Standards Act (FLSA) “implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees.”
It would guarantee overtime pay for most salaried employees paid less than $1,059 per week, or about $55,000 per year, according to a news release from the DOL.
With the proposed increase in the overtime salary threshold from the current $35,568 to the $55,000 mark, approximately 3.6 million workers would be eligible for overtime pay under the proposed rule, according to the DOL.
Through the proposed rule, the DOL seeks to update and revise the regulations for determining whether certain salaried employees in executive, administrative or professional roles (EAP), also classified under the FLSA as the “white collar exemption,” would qualify for the guaranteed overtime pay, ACA International previously reported.
The DOL also proposes to increase the annual compensation requirement for “highly compensated employees” to $143,988, which is based on the annualized weekly earnings of the 85th percentile of full-time salaried workers nationwide.
There would be automatic updates to the overtime threshold every three years if the rule is approved.
The 2016 rule overturned in court also included automatic updates and the proposed salary threshold this time around is close to that in the previously invalidated rule, increasing the likelihood of legal challenges, SHRM reports.
But multiple factors make it practical for employers to prepare now for some change in overtime standards.
“Employers cannot afford to wait until a court decision on the matter,” Neal Shah, an attorney with Frost Brown Todd in Cincinnati, said in the article. “While employers do not need to make decisions today, they will likely need to have a plan formalized prior to any court ruling on the matter.”
If the threshold increases under the new NPRM, and you employ salaried, full-time staff whose pay is below the minimum exemption, you will have some decisions to make. For instance, you may:
- Increase their salaries and/or bonuses to meet the threshold so they remain exempt, and therefore able to work overtime without receiving extra pay;
- Maintain their current pay and limit them to 40 hours a week; or
- Opt to pay them overtime—perhaps on a pre-approved basis.
You may need to create a new approval process for overtime or off-hours work, in addition to updating policies on scheduling, commissions and bonuses.
The need to review your company’s overtime policies and job descriptions and prepare for compliance now also comes down to timing.
“Just like in 2016, there is a real chance here that employers do not get court guidance on whether the rule will go into effect until very close to the effective date of the rule,” said Brett Coburn, attorney with Alston & Bird in Atlanta, in the SHRM article.
Upon publication in the Federal Register, the NPRM will be open for public comment for 60 days. The DOL will consider all comments received before publishing a final rule. Learn more about the proposed rule and instructions for submitting comments.
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