The Wage and Hour Division of the Department of Labor recently released a Notice of Proposed Rulemaking (NPRM) to update federal overtime regulations. It is estimated that the proposed changes would make more than one million current employees newly eligible for overtime premium pay.
As a refresher, the Obama administration attempted to make drastic changes to the overtime regs in 2016, but a U.S. District Court in Texas put a hold on the changes just a few days prior to implementation. The current proposals are much more conservative in their scope. They were drafted after the Department of Labor reviewed over 200,000 submissions from a formal Request for Information in 2017 and sponsored six in-person listening sessions around the country.
The largest change is an increase in the minimum annual salary threshold from $23,660 to $35,308 ($679 per week). This means that if an employee's weekly pay is less than $679, they cannot qualify for any exemption from the Fair Labor Standards Act and thus overtime must be paid for all hours worked in excess of 40 per week.
Please notice that employers must define this pay week to make the calculation. The Department of Labor does not require the use of any specific definition of the pay week. While most organizations use a Monday through Sunday definition, I know of several businesses where it is defined differently to accommodate the needs of that employer and its employees.
The proposed changes also included that up to 10 percent of the minimum salary threshold can be derived from a non-discretionary bonus or incentive, such as a sales commission. Therefore, if you have a quarterly incentive plan that pays up to $500 to reduce scrap in your manufacturing facility, and it pays out the maximum for the quarter, you get to credit $38.46 toward the minimum threshold.
There were no changes proposed to the job duties test to see if a specific job that is above the minimum threshold qualifies for an exemption. Categorizing a position as exempt still requires administrative, executive, professional, outside sales or information technology duties. Having current and complete job descriptions is the key. They also assure compliance with the Americans with Disabilities Act, As Amended.
The threshold for an employee to be considered a highly compensated employee for overtime purposes is proposed to increase from $100,000 to $147,414. Thus, anyone earning between these two numbers will probably become eligible for overtime compensation depending on the previously mentioned duties test.
One last point about the proposed overtime changes -- unlike the 2016 changes that were put on hold -- there were no provisions added to create any kind of automatic adjustment of the dollar values.
The comment period for the proposed rules has expired, and the Department of Labor is currently reviewing the submissions before finalizing the changes. The implementation date will be announced when the rules become final.
Randy Fox, SHRM, SCP, SPHR, is founder and senior partner of Capstone HR Services, Inc.