Change to Overtime Rule May Be on Horizon
The U.S. Department of Labor is expected to recommend as early as April a higher salary threshold for white-collar exemptions to overtime rules. Currently the threshold is $684 per week, or $35,568 per year. This means that anyone who makes less than that amount – or do not meet the “duties tests” -- must be paid overtime (at least 1.5 times their regular hourly rate) for any hours worked over 40 per workweek.
The $20,000 question (not literally, but who knows?) is just how high the proposed threshold will be. Of course, there’s no telling when a proposed increase would go into effect, or if there would be legal challenges to such a proposal. If the current amount was adjusted for inflation, it would rise to $42,594 annually, according to former Wage and Hour Division Administrator Tammy McCutchen.
Russell Bruch, an attorney with Morgan Lewis in Washington, D.C., explained in a recent SHRM article: “If there is a significant increase in the salary-basis level for the executive, administrative and professional exemptions, this change will require employers to identify and evaluate positions compensated below the new threshold.” Employers then will have to “decide whether to reclassify employees or raise their salaries” to avoid paying overtime.
What are the ‘duties tests’?
The duties tests denote which employees are exempt — not eligible for overtime pay — and they depend on a variety of factors. Each of the three white-collar exemptions has slightly different criteria. According to the DOL:
- Executive exemption: The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must regularly direct the work of at least two employees and have a say in or the authority to hire or fire workers.
- Administrative exemption: The employee’s primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include making decisions with respect to matters of significance.
- Professional exemption: The employee’s primary duty must be to perform work that requires advanced knowledge in a field of science or learning that is normally acquired by prolonged, specialized, intellectual instruction and study.
A little history
- 1938: The Fair Labor Standards Act (FLSA) is enacted, along with the creation of the Wage and Hour Division. The FLSA guarantees a minimum wage for all hours worked and overtime for any hours worked over 40 per week for all covered, non-exempt employees.
- 1940: The earnings threshold is set at $1,560 for executives and $2,600 for administrative or professionals.
- 1970: After undergoing periodic increases, the rate is set at $6,500 for executives and $7,280 for administrative or professionals.
- 2004: The salary-level threshold is raised to $23,660 ($455 per week) for all white-collar exemptions.
- 2016: DOL proposes raising the threshold from $23,660 to $47,476, but 10 days before it was to take effect, it was struck down by a federal judge in Texas.
- 2019: The current threshold ($35,568) is set in a final ruling by the Department of Labor, which took effect Jan. 1, 2020.