Recent changes to overtime pay announced by the U.S. Department of Labor (DOL) could affect your right to overtime pay, or your business’s obligation to pay your employees for overtime.
New overtime rules for salaried, white-collar employees
Before explaining the new proposed rule, I should note as a starting point that salaried employees are entitled to overtime pay under certain circumstances. The overtime rules are complicated and can confuse small business owners, who often believe that salaried employees are categorically exempt from overtime pay, no matter the circumstances. This misconception can result in liability for unpaid overtime under the Fair Labor Standards Act (FLSA), including the potential that an employee be awarded double their unpaid overtime wages, plus attorney’s fees.
Overtime laws states all employees who are engaged in interstate commerce (broadly defined) are entitled to overtime pay. The FLSA then includes numerous exceptions (exemptions) to the rule, including an exemption for white-collar workers paid on a salaried basis.
There are three white-collar exemptions that apply according to the primary job duties of the worker: the executive exemption, the professional exemption, and the administrative exemption. Each of the white-collar exemptions also requires that the employee make a certain salary. The idea is that white-collar workers who are well compensated need not be protected by overtime hours.
The rule for white-collar workers has been a political football for the past three presidential administrations. In 2004, the Bush administration set the salary threshold at a meager $23,660 per year ($455 per week). This opened the white-collar exemption to all sorts of workers who were not entitled overtime pay—including, for instance, the assistant manager of a fast food restaurant. These salaried workers could be required to work well over 40 hours per week and not be entitled to anything more than their salary of $23,660.
In 2016, the Obama administration proposed a doubling of the salary threshold to $47,476 per year ($913 per week). The courts ultimately invalidated the rule.
Now, the Department of Labor is back with a new proposal that essentially splits the difference. Under the new proposal (set to take effect in around January 2020), the salary threshold for white-collar exemption will be set at $35,308 per year ($679 per week). This new salary level replicates the methodology used in 2004—that is, tying the salary level to the 20th percentile of full-time worker earnings in the south and in the retail sector.
Impact on businesses and employee
So what does this mean for your business, or you as a salaried employee? In plain English, if you are a salaried worker making less than $35,308 per year, you likely will be entitled to overtime pay—and the failure of your employer to pay overtime pay could be unlawful. If you make more than $35,308 per year, there are a series of other requirements related to job duties that must be met before the white-collar exemption applies.
Worker advocates have criticized the new proposed rule as not going far enough, noting that as of today, only 7 percent of salaried workers are entitled to overtime, compared to nearly two-thirds in the 1970s. Under the proposed Obama-era rule, that number would have increased to one-third. The new rule will make 1 million more workers eligible for overtime, as compared to 4 million under the Obama rule.
The proposed changes to the law also raise the threshold for “highly compensated workers,” from $100,000 to $147,414. “Higher compensated workers” face looser job-duty requirements than white-collar workers for being exempt from overtime pay.
If you believe you are entitled to unpaid overtime, or if you have questions about whether your company’s workers are exempt from overtime, contact the employment attorneys at Spengler & Agans for a consultation.