The U.S. Department of Labor (DOL) has issued proposed regulations that, if finalized, will make it harder for employers to classify lower paid salaried employees as exempt from overtime pay. Previously, in order to avoid paying overtime to exempt employees who worked more than 40 hours in a week, employers only had to pay such employees an annual salary of $23,660 (in addition to meeting certain other requirements with regard to the type of work the employee performed).
Under the proposed rule, such employees will be entitled to overtime unless they are paid a salary of at least $35,308 per year. The rule also provides that the minimum salary for exempt employees will be automatically reviewed every three years to determine whether additional increases are needed.
You may remember that in the waning months of the Obama administration, the DOL had tried to double the salary required to be paid to exempt employees (from $23,660 to about $47,000) to make up for decades during which the agency neglected to increase the limit to keep up with inflation. That increase was invalidated by a court, and the Trump administration abandoned it in favor of the new, much lower limit of $35,308.
What’s next? Assuming the new regulations are finalized as-is, employers with certain types of lower-paid exempt employees that work more than 40 hours a week will have to choose between:
- Increasing their salaries by $11,648 (or more) to maintain their exempt status;
- Maintaining their current salary (or an equivalent hourly rate), reclassifying them as nonexempt, and paying them overtime if they work more than 40 hours in a week; or
- Prohibiting them from working overtime (which may result in the need to hire additional staff).
While nothing’s certain, it’s expected that the rule will be finalized with few changes. Employers may want to go ahead and start developing a strategy for implementing strategic changes when the rules are finalized. We will continue to keep you informed of any new developments!
By Julie Athey, Director of Compliance, The Miller Group