Global Compliance Desk – United States

On March 7, 2019, the Department of Labor announced a proposed rule that would update the Salary Level Test, making more than a million more American workers eligible for overtime. This would raise the salary requirement that determines whether an employee is exempt from getting paid overtime. In order for an employer to avoid paying an employer an overtime premium for hours worked over 40 in a workweek, it must show that the employee meets a duty and salary test.

After an attempt in 2016 during the Obama administration to raise the level to $47,476 per year was delayed by a federal judge for the U.S. District Court for the Eastern District of Texas (and then denied by the current administration), the current DOL is scheduled to propose a new threshold in March 2019. US Labor Department Secretary R. Alexander Acosta suggested during his confirmation hearing that the maximum for mandatory overtime pay should be increased to around $33,000.

What might the new salary threshold be if the proposed Overtime Rule gets enacted?

• • Either the revised salary threshold would be $31,824 annualized or $612 per week; or
  • If instead, the DOL were to increase the threshold by the level of inflation, the new salary level would be $30,576 annualized or $588 per week.

What to expect after enactment of the Overtime Rule?

• • The new overtime rule would result in the reclassification by employers of more than a million currently exempt workers as non-exempt and an increase in pay for others,
  • Companies then might set an hourly rate for those employees that would result in the same number of hours worked and the same total pay, even with overtime hours.
  • Businesses could implement restrictive overtime policies, limiting employees’ authorized overtime, though companies would still have to pay for any unauthorized overtime employees worked.
  • Companies could reduce newly reclassified employees’ hours or use part-time employees to ensure that newly non-exempt employees do not work overtime.

Conclusion

The proposed rule is expected to become effective approximately in January 2020. The Department of Labor intends to propose an update to the salary threshold every four years to ensure that these levels continue to provide useful tests for exemption. Updates would not be automatic and would continue to require notice-and-comment rulemaking.