Department of Labor Issues Proposed Rule That Will Increase Worker Eligibility for Overtime

Many employers will need to consider how they pay managers, supervisors, and other certain exempt employees if the U.S. Department of Labor ("DOL") finalizes and adopts a proposed rule to overhaul the minimum salary for exemptions from the Fair Labor Standards Act. In response to President Obama's March 13, 2014 Presidential Memorandum directing the Secretary of Labor to update and modernize the "outdated" overtime regulations, the DOL is inviting public comment by September 4, 2015 on the proposed rule featuring the following:

• A significant increase to the minimum salary that an employee must receive to be exempt, from $455 per week ($23,660 annually) to not less than $921 per week ($47,892 annually). That new salary is what the DOL describes as the standard salary level equal to the 40th percentile of earnings for full-time salaried workers. This salary likely will increase in the final rule as the DOL estimates that the 40th percentile will be $970 ($50,440 annually) in 2016. Regardless of an employee's management responsibilities, if the employer does not pay the salary that the new rule would require, the employee will be non-exempt and entitled to overtime pay after working more than 40 hours in the workweek.
• A significant increase for the required annualized salary for the highly compensated employee exemption from $100,000 to $122,148.
• Potential automatic annual adjustments to the required annualized salary for exempt employees.

The proposed rule has the potential to impact millions of workers whose primary job duties make them exempt as long as their salary is at least the current $455 per week.

Our Recommendations

We expect the DOL will implement the proposed rule in its current form or with only modest changes sometime in 2016. Employers should begin planning now by evaluating whether employees whom they currently classify as exempt from the federal overtime law will continue to qualify as exempt.

• To the extent reclassification to non-exempt status is necessary, plan for potential increases to payroll costs. 
• For exempt employees whose salaries will not be enough to qualify for exemptions under the new rules, either (1) plan to raise their pay so the exemption continues; or (2) examine their typical weekly working hours, determine an hourly rate of pay, and factor in any resulting overtime premiums for long workweeks.
• Employers have the right to limit or even prohibit overtime—but will it come at the expense of poorer employee relations if employees are accustomed to working overtime? Consider the impact if the employee's new regular rate of pay with tight controls on overtime will result in less income.
• Employees who will no longer be exempt must be paid for all time spent working "on the clock." Employers should have clear policies requiring employees to accurately record all time actually worked, and be certain that non-exempt employees receive their regular rate of pay (and overtime, if applicable) for working nights, weekends, and other times outside of regular business hours.
• As a final caveat, employers may be subject to overtime requirements under state law and must ensure compliance with such laws to the extent that they are more protective.

We Can Help
Please contact a member of Maslon's Labor & Employment Group if you have any questions regarding the proposed rule and how it may impact your company.