United States: Be Prepared For New Federal Overtime Rule Regarding Salary

Highlights

• New federal overtime rules are coming that will impact who qualifies as an exempt employee.
• Early preparation will avoid challenges when the new rules come into force.

It is expected that the U.S. Department of Labor (DOL) will set a new salary threshold in the near future for the various exemptions to overtime pay under the Fair Labor Standards Act. It is possible that employers may only have a short window of time to comply between the announcement of the final rule and the effective date for compliance.

Back in 2016, a proposed rule from the DOL under the Obama Administration would have raised the salary threshold for white collar exemptions from $23,660 to $47,500. A federal court enjoined the rule from taking effect, and DOL abandoned the rule. The new rule being proposed by the DOL would raise the salary threshold from $23,660 to $35,308. It is also expected that the highly compensated employee exemption will be raised from the current level of $100,000 to $147,414 under the new proposal. The goal of the Trump Administration appears to be to have the new rule in effect before the 2020 presidential election.

What Employers Should Do Now

Employers should start planning for changes now by reviewing all exempt employees who are making less than the potential proposed cutoff. Employers should also review all exempt employees who are making slightly more than the proposed new cutoff in the event that the final salary number is higher than $35,308. The same should be done for all employees who currently fall under the employer's highly compensated exemption.

Employers will need to weigh the pros and cons of raising exempt employees' salaries above the new threshold as opposed to reclassifying them to nonexempt positions and thus making them eligible for overtime. If the decision is made to move some employees to nonexempt status, employers should make sure that employees understand that this is not a demotion and is based on new rules being implemented by the government. The key is to be prepared in advance so that any transitions can be done in a smooth and timely manner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.