Proposed Rule Change Could Expand Eligibility for Overtime Pay

On March 7, 2019, the U.S. Department of Labor announced a Notice of Proposed Rulemaking that would make more than one million more American workers eligible for overtime pay.  The proposal is designed to update and revise the regulations issued under the Fair Labor Standards Act (FLSA) which sets out exemptions from minimum wage and overtime requirements for certain executive, administrative, professional, outside sales and computer employees.

Since 1940, the Department’s regulations have generally required employees meet each of these three tests for a FLSA’s exemptions to apply:

  1. Salary Basis Test: 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. Salary Level Test: The amount of salary paid must meet a minimum specified amount.
  3. Duties Test: The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

New Salaries Qualify for Overtime Pay

Under the current law, employees with a salary below $455/week ($23,660/year) are entitled to overtime pay if they work over 40 hours in a week. The new proposed rule would increase the standard salary level exemption test so that employees with a salary below $679/week ($35,308/year) would be entitled to overtime pay if they work over 40 hours in a week. The proposed amount accounts for wage growth since the 2004 rulemaking, projected forward to January 1, 2020, the approximate date a final rule is expected to be effective.  The new proposed rule also requires periodic review to update the salary threshold.

Other Possible Changes to Overtime Pay

The new proposed rule also proposes to update both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” to reflect growth in wages and salaries by increasing the total annual compensation requirement needed to exempt highly compensated employees to $147,414 annually, up from the currently enforced level of $100,000 annually.

Finally, the new proposed rule proposes to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided these payments are made on an annual or more frequent basis.

It is important for employees to know whether or not they are entitled to overtime pay. It is also important for employers to update their policies and procedures if this proposed rule goes into effect.

Please contact Upton & Hatfield if you have questions about overtime law.

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