It’s time to audit your payroll practices.

Most employers are aware that, under federal law, employees are entitled to receive a half-time overtime premium for all hours worked over 40 in a workweek – unless the employee (i) meets minimum thresholds regarding their pay and (ii) performs specific duties. The U.S. Department of Labor (DOL) recently issued a proposed revision to the regulations governing the minimum pay threshold.

The proposed rule increases the salary levels for overtime eligibility almost twofold. Under current law, an employee must make only $684 per week ($35,568 per year) on a salary basis (in addition to performing certain duties) to be eligible for one of the three “white-collar” exemptions – the executive, administrative, and professional exemptions – to overtime pay. Under the proposed rule, the minimum salary level for those exemptions will be set at $1,059 per week ($55,068 per year).

The DOL also proposes to automatically update salary levels every three years based on then-current wage data. This part of the rule feels particularly vulnerable to legal challenge, as it mirrors a similar provision originally proposed in 2016 that was stymied by litigation.

The proposed rule also is notable for what it will not change; namely, the “duties” test of the white-collar exemptions. Of course, that does not make them less confusing or easier to follow for employers!

We currently are in the middle of the 60-day comment period following the publication of the proposed rule. Once these 60 days expire, the DOL will consider any comments received and subsequently issue the final rule. There likely will be some period after the final rule is issued before it takes effect, to allow employers to plan for compliance. That does not mean that employers should wait to start planning, however. At the very least, employers should take a closer look at their current pay practices, including whether it is properly classifying the employees it currently treats as exempt. Doing so will allow employers to act more quickly and decisively when the rule is implemented.

The DOL estimates it will impose $1.2 billion in direct costs on employers in the first year alone. The DOL also estimates that 3.4 million more employees will be eligible for overtime pay under the new rule. If you believe any of your employees will be part of that 3.4 million, contact an RKW employment attorney to discuss your options.

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