After waiting for the Department of Labor (DoL) to issue a ruling, employers in healthcare and other sectors are looking for resolution concerning the new salary threshold for exemption from overtime.
Under the Fair Labor Standards Act, the salary threshold had stood at $455 per week or $23,660 annual pay for a number of decades. That meant that any employee who made less than the threshold amount would automatically be considered non-exempt and qualify for overtime pay. (Receiving pay over that threshold does not guarantee exemption as there are still tests that need to be passed in order to qualify.)
In Dec. 2016, the DoL (the Department of Labor) under the Obama administration, proposed adjusting that threshold to $913 per week or $47,476 annually. That threshold would be adjusted every three years based on changes to the earnings of full-time salaried workers in the lowest-wage census region. Just before this DoL rule was to take effect, on August 31, 2017, federal courts issued an injunction that put a hold on the rule change.
ON MARCH 7, 2019, THE DOL ISSUED A NEW RULE ON THE EXCEPTION SALARY THRESHOLD
The new exemption threshold is $679 per week or $35,308 annually. This amount is almost exactly halfway between the original threshold and the one proposed in 2016. The threshold will increase every four years, but only after an announced notice and a period of time for the public to comment on these changes (normally these periods last 60 days).
Certain nondiscretionary bonuses and incentive payments may count for up to 10% of an employee’s salary for purposes of the exemption salary threshold. At this time, there does not appear to be an academic administrative exemption for the higher education sector, but that could be included in a more detailed response from the DoL.
There are no changes to the duties test under the current rule.
In a somewhat surprising change, the threshold for highly compensated employees is to be increased to an annual rate of $147,414. This is more than $13,000 higher than the proposed 2016 rule.
IF ADOPTED, NEW SALARY THRESHOLD WILL AFFECT 1.1+MILLION PEOPLE
So what can employers expect to happen if this rule is adopted?
First, the DoL estimates that this new salary threshold will affect more than 1.1 million individuals currently classified as exempt. These employees either will have to be reclassified as non-exempt or receive a pay increase to the new threshold.
Before issuing its final rule, the DoL will accept comments from the public for 60 days once the notice is published in the Federal Register. Should anyone wish to do so, the proposed rule can be found at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. The DoL has extended the public comment period to June 25.
ORGANIZATIONS SHOULD PREPARE FOR THE POSSIBILITY THAT THE NEW SALARY THRESHOLD WILL TAKE EFFECT
Even after the comment period expires, challenges in the courts are likely if the last proposed change is any indication. So the odds of the rule becoming effective on the expected implementation date of January 2020 are fairly low. However, organizations that have not prepared for the new threshold should take this opportunity to do so, and apply both the new rule and existing duties test to see where any changes might be required, just to be on the safe side.
When considering changing an employee from an exempt status to a non-exempt status, remember to consider the financial impact (including potential overtime costs), the need to document all time on a weekly basis, and the loss of status an employee may feel--many view a non-exempt designation as a lower status in the organization).
For questions about the proposed change in salary threshold for overtime, click here or contact Gallagher’s HR and Compensation Consulting practice.