Are you aware of the latest proposed overtime regulations by the Department of Labor (DOL)? Don’t feel bad if the answer is “no” because the path to potential change has been full of twists and turns.

Read on for a refresher on what has transpired with FLSA overtime regulations in recent years and, most important, where they stand today. You’ll also get some insight on how to begin preparations now, in case new overtime rules are finalized in the next year.

A Closer Look at Regulatory Activity Since 2016

As you recall, the DOL issued sweeping new overtime rules in mid-May 2016 under the Obama administration.  The highly debated changes would have increased the minimum salary threshold for overtime pay exemption from $455/week ($23,660 annually) to $913/week ($47,476 annually).  At the time, the DOL estimated that nearly 4.2 million workers who were currently exempt would become eligible for overtime under the revised threshold.

The new overtime rule was scheduled to take effect December 1, 2016, but, as anticipated, it was challenged in the courts. Based on arguments by various states and business groups, a federal judge in Texas issued a final-hour preliminary injunction on November 22, 2016, blocking the DOL from implementing the rule.

Fast forward to spring 2019.  Nearly three years later, on March 7, 2019, the DOL has released a new Notice of Proposed Rulemaking, reviving the issue of updated federal overtime regulations once again. To help develop the proposal, the agency received extensive public input and more than 200,000 comments from a Request for Information (RFI).

What the 2019 Proposed Rule Covers

So where does this leave us? The DOL’s 2019 proposed rule would raise the minimum salary requirement to $679/week ($35,308 annually) – considerably less than the 2016 rule. While the earlier changes would have affected more than 4 million workers, the 2019 rule will only make
1 million exempt workers eligible for overtime pay.

Something that won’t change under the 2019 proposal are the white-collar duties tests for executive, administrative and professional employees. In addition to the salary requirement, certain factors must be met for an employee to qualify for exempt status under these federal tests. For example, to qualify for an administrative exemption, the employee must perform non-manual work, manage “back office” general business operations and have decision-making authority on significant matters.

Remember: Exempt status is determined through salary and the DOL job duties tests. To properly classify employees, you must look beyond job title or payment and consider the actual work performed.

As next steps, employers and other members of the public can submit comments to the DOL for a 60-day period following the formal publishing of the proposal. From there, the DOL anticipates that the final rule could be issued and take effect by January 2020.

Proactive Measures for Responsible Employers

If the proposed salary threshold is finalized, you will have two primary options with affected employees:

1. Increase employee salaries to avoid having to calculate and pay overtime
2. Reclassify employees as nonexempt or “hourly” and pay them one-and-a-half times the regular hourly rate for any hours over 40 in a work week

Obviously, this will require a careful review of your salaried employees’ hours and your payroll budget. (You’ll also need to verify that potentially affected employees meet the job duties tests for exemption; otherwise, they won’t qualify, regardless of salary.) While in some cases it may be best to boost salaries that are close to the threshold to avoid overtime issues altogether, in other cases you may want to reclassify employees as hourly and closely track their hours to control overtime costs. Once you’ve made these reclassification decisions, you’ll need to properly document all payroll status changes.

It’s also important to put together a communication plan to inform management and employees about the new rules and their impact on the workplace. Finally, timekeeping training should be conducted for employees going from salary to hourly – and for supervisors who will have the responsibility of approving overtime and timesheets.

For now, however, you should continue to comply with existing overtime regulations, as well as applicable state requirements. We will continue to monitor the situation and keep you posted on any further developments.

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