By: Victoria Scaglione
On Tuesday, September 24, 2019, the Department of Labor (DOL) revealed its new white-collar overtime rule, which updates “the Fair Labor Standards Act’s overtime and minimum wage exemptions for executive, administrative and professional . . . workers.”[1] “Unless exempt, employees covered by the Fair Labor Standards Act” are required to receive overtime for any hours worked in excess of the forty hour workweek.[2] The new rule sets the threshold salary for executive, administrative, and professional (EAP) employees to $35,568 a year to be considered exempt.[3] Simply put, this means that anyone earning above this threshold will no longer receive overtime pay. The new regulation leaves employers with only a couple of months to comply, as it will take effect on New Year’s Day 2020.[4]
Prior to enacting this rule, only blue-collar employees and workers earning less than $23,000 a year earned overtime pay.[5] In 2014, the Obama administration attempted to raise the threshold to $47,000 in order to keep up with inflation, which would allow an additional 4.2 million employees to become eligible for overtime pay.[6] However, this attempt received a highly negative response, as twenty-one states sued the administration.[7] The rule was later invalidated, as a federal judge held that the DOL lacked the authority to make such a radical change.[8] This ruling is still on appeal before the Fifth Circuit Court of Appeals.[9]
To be considered exempt under the new rule, employees must pass the “job duties test,” where employers conduct an analysis of the employee’s job duties when they earn over the salary threshold.[10] If the job duties involve primarily EAP duties according to current regulations, then the employee is deemed exempt.[11] This test has not changed under the new rule and has been a long-standing method used for determining exemption.[12]
Although the DOL believes that the new rule will benefit near 1.3 million workers by allowing them to be eligible for overtime pay, it will likely harm over 2.8 million workers who would’ve received overtime under the rule proposed by the Obama administration.[13] Additionally, others believe that the regulation will lead to legal action, similar to the litigation that occurred after the Obama administration’s 2016 overtime rule.[14] The new rule will most likely impact “education, wholesale, and retail businesses, [as well as] businesses providing professional services.”[15] For example, those who work in higher education institutions and earn salaries in the mid-$20,000 range, like “adjunct professors, graduate student assistants or assistant sports coaches” will likely have their job duties redefined, so that their employers avoid paying overtime wages.[16] The increment in salary to meet the newly set threshold would not be practical.[17]
As a result of the new regulation, employers may have to make drastic changes in order to be compliant. Some employers may have to increase employee salaries in order to avoid overtime payment, while others may be forced to “[r]eclassify employees as nonexempt or ‘hourly.’”[18] Additionally, it may be necessary for employers to “[e]xamine existing and potential bonus and commissions plans as an alternative to reclassification,” and to “[d]evelop internal messaging to aid employees in understanding the changes to their compensation and classification.”[19]
[1] Vin Gurrieri, Employers Face Time Crunch As New OT Rule Looms, Law360 (Sept. 25, 2019), https://www.law360.com/employment/articles/1202771/employers-face-time-crunch-as-new-ot-rule-looms.
[2] David M. Prager, Overtime: DOL Proposes to Raise Salary Level for Overtime Exemption to $35,308, Wage & Hour Def. Blog (Mar. 8, 2019), https://www.wagehourblog.com/2019/03/articles/flsa-coverage/overtime-dol-proposes-to-raise-salary-level-for-overtime-exemption-to-35308/.
[3] Vin Gurrieri, 4 Takeaways As DOL Finalizes Overtime Rule, Law360 (Sept. 24, 2019), https://www.law360.com/employment/articles/1202554/4-takeaways-as-dol-finalizes-overtime-rule-.
[4] Id.
[5] Alexia Fernández Campbell, 1.3 Million Winners and 2.8 Million Losers From Trump’s New Overtime Rule, Vox (Sept. 24, 2019), https://www.vox.com/identities/2019/9/24/20835653/trump-overtime-pay-rule-explained.
[6] Id.
[7] Id.
[8] Id.
[9] Michael Correll & Abby Kotun, The New DOL Final Overtime Rule: What It Means For Employers, Lexology (Oct. 1, 2019), https://www.lexology.com/library/detail.aspx?g=e28844eb-88a7-4c19-a1f0-7597dfd66519.
[10] Gurrieri, supra note 3.
[11] Id.
[12] Correll & Kotun, supra note 9.
[13] Campbell, supra note 5.
[14] Gurrieri, supra note 3.
[15] Id.
[16] Gurrieri, supra note 1.
[17] Id.
[18] Update on DOL Overtime Regulations: New FLSA Overtime Rule Just Finalized and Effective January 2020, ComplyRight (Sept. 25, 2019), https://www.complyright.com/employee-time-pay/dol-announces-potential-new-flsa-overtime-regulations.
[19] Correll & Kotun, supra note 9.
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