Overwhelmed by the DOL's OT Threshold Increase? Here's What Employers Should Know

By: Linda Bond Edwards


Originally published in the Daily Business Review, April 9, 2019

Earlier this month, the employer adrenaline probably recharged with the March 16 announcement of the proposed rule change set to take place in 2020, if approved.

Virtually every employer experienced a bit of anxiety when former President Barack Obama announced on May 18, 2016, that new Fair Labor Standards Act (FLSA) rules would take effect December 2016. Then, they felt a rush of relief when the changes were placed on hold by the Eastern District of Texas’ court and elated when they learned that the changes would not take place at all.

Earlier this month, the employer adrenaline probably recharged with the March 16 announcement of the proposed rule change set to take place in 2020, if approved.

On March 22 the Wage and Hour Division of the Department of Labor (DOL) published the proposed rule for defining and delimiting exemptions for executive, administrative, professional, outside sales and computer employees in the Federal Register, starting the 60-day clock for public comments.

While much of the focus has been on the salary basis test, the proposed rule also affects nonexempt employees earning more than $100,000 or the “highly-compensated” employees (HCE). The threshold increases to $147,414,meaning that these nonexempt employees do not receive overtime until they have been paid $147,414 annually. The Obama-era rule capped the HCEs at $134,004.

The FLSA, passed in 1938, is one of the oldest employment laws in the country, and generally requires covered employers to pay employees minimum wage and to pay time and one half the regular rate for all hours worked over 40 in a workweek. Much litigation has ensued over the FLSA in recent years about what constitutes hours worked.

Who is covered by the FLSA?

Under the FLSA, there are two types of coverage: enterprise coverage and individual coverage. As a general rule, any business with annual revenues in excess of $500,000 is covered by the FLSA. Even if the organization is not covered, individuals who engage in interstate commerce or in the production of goods and service for commerce must comply with FLSA regulations. .

The DOL defines these activities as making out-of-state phone calls, receiving or sending interstate mail or electronic communications, ordering or receiving goods from an out-of-state supplier and handling credit card transactions, or performing the accounting or bookkeeping for such activities.

Who is entitled to overtime?

All employees are entitled to the provisions of the FLSA, unless the employer establishes an exemption based on the employee’s job duties. Courts construe the exemptions narrowly and the misclassification of employees as exempt from overtime is one of the biggest areas of litigation.

The basis for the exemptions focuses on the primary job duties of the employees. If the job duties meet the requirements set forth in the regulations for executive, administrative, professional, computer or outside sales, to name the most commonly used, the employee must also meet the salary basis test.

Unless the job duties meet the requirements defined by the DOL including the salary minimum, the employee is entitled to minimum wage and overtime coverage under the FLSA. Neither the job title, the fact that the employee wants to be “salaried” nor because the employer designates an employee as salaried satisfy the exemption test.

 Change in the salary basis test.

 Employers should use this opportunity to carefully review job duties of all employees to ensure proper classification. The definitions and descriptions for the three most common exemptions have not changed under the new rules. The proposed rule change focuses on increasing the salary basis from $455 per week ($23,660 annually) to $679 per week ($35,308 annually). As such, any employer that has properly classified the employee as exempt and pays the employee less than $35,308 annually must either increase the employee’s pay or reclassify the employee as nonexempt.

While increasing the pay for exempt employees is the simplest way to implement the new change, employers can also reclassify the employees as nonexempt and spread the tasks around to bring work hours below 40. They could also prohibit employees from working more than 40 hours in a workweek. A one-size solution does not fit all.

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