Five Things to Know About New Overtime Rules

Five Things to Know About New Overtime Rules

Last week, the United States Department of Labor (DOL) announced a new proposal to change the rules used to determine which employees are eligible for overtime pay.   For eligible employees, the Fair Labor Standards Act (FLSA) requires that employers pay a rate of one and one-half times the employee’s regular rate for hours worked over 40 in a workweek.    The Administration is proposing that more workers deserve overtime, thus the new rules.  Here are the five things employers need to know about the DOL’s proposed changes:

1.     Who Is Affected by New Overtime Requirements?

The short answer is about 5 million workers who could be eligible for overtime that aren’t now and all businesses that will have to reevaluate their workforces.  The main change suggested by the new regulations relates to salary level, which is one of the tests that determines eligibility for overtime.  Under current law, the level is $455 a week or $23,660 annually.  Under the proposal, the new level discussed is $921 a week or $47,892 annually.  This significant increase is based on the 40th percentile of weekly earnings of full-time employees (35 hours/week).  However, these numbers were calculated using 2013 data and will be adjusted before the rule is finalized.  It is estimated that these numbers will be closer to $970 weekly and $50,440 annually, based on estimates of what that 40th percentile will be in the first quarter of 2016.  Further, a category of workers designated as “highly compensated executives” (HCE) are exempt from overtime pay, and the salary test for these employees will also be changed from a current level of $100,000 to $122,148, or the 90th percentile of full-time employee earnings (based on 2013 data).

2.    When Will the New Rules Take Effect?

The proposal was published in the Federal Register on July 6th, which starts the 60-day public comment period  Comments received by September 4th will be part of the rulemaking record.  With the benefit of this feedback, the DOL will issue a final rule.  There is no set timeline on the issuance of the final rule.

3.    What About Other Tests to Determine Overtime Eligibility?

When determining who is eligible for overtime, salary is only one consideration.  There is also a “duties” test that provides an exemption from overtime pay for employees who perform certain duties that are managerial or professional in nature.  While the proposed rule does not make specific changes to this test, it asks for feedback on whether the current test is effective.  This suggests that the DOL is open to creating new rules for these standards as well.

4.     Once the New Rules Are Final, How Long Will They Last?

The overtime rules have changed sporadically – seven times since 1938, and most recently in 2004.   However, the DOL’s proposal envisions annual updates to the salary levels, using either a fixed percentage or a consumer price index update.  The agency is asking the public for feedback on the best mechanism for regularly updating the salary thresholds.

5.     Is There Anything I Can Do to Change These Rules?

Yes, the rules aren’t final yet.  As stated above, the DOL is seeking comment, and it provides instruction on how to do so in its proposal – the deadline is September 4th.  In addition, even before the proposal came out, Congress held a hearing to ask questions about the policies the DOL was contemplating.  Congress will continue to express its views and try to steer the DOL as it writes the final rule, so communicating with your representative and senator is also important.