The U.S. Department of Labor (DOL) has issued its anticipated proposed new rule to increase the salary level for an employee to be exempt from overtime pay. In order for an employee to be exempt, the employee currently must be paid a salary of at least $684 per week, and must meet certain duties tests. The most common exemption categories are known as the “white collar” exemptions: executive, administrative and professional. The exempt duties generally fall within those categories, and each category has different criteria. The new rule would raise the required salary level to $1,059 per week ($55,068 per year for a full-time worker).
The salary level was last adjusted effective January 1, 2020 when it was raised to the current $684 per week level (equivalent to $35,568 per year for a full-time worker). A previous DOL proposal to increase the level to $913 per week ($47,476 per year) was struck down by the courts in 2019.
Under the proposed new regulation, employees with a salary of less than $1,059 per week must be paid time and one-half for all hours over 40 per week. In order to keep an employee who is currently earning less than $1,059 per week in the exempt category, you will need to raise the employee’s salary to at least that level. Alternatively, employers can reclassify a salaried employee as nonexempt and maintain the employee at a salary of less than $1,059 per week, but require the employee to record work hours and pay the overtime level for hours in excess of 40 per week. The employee can also be reclassified as hourly nonexempt, with the requirement for overtime pay.
As with the previous proposed rule, employers are again faced with some difficult decisions. If employees who are currently salaried are reclassified as hourly, they potentially will view the change as a loss of status or demotion, even though their compensation might actually increase if they work overtime. Employers will need to examine all positions with a salary of less than $1,059 per week and decide what changes are needed. This evaluation of positions should begin soon, as the DOL has not yet said when the proposed new rule would go into effect.
We will advise you when the proposed rule is scheduled to go into effect, and whether it is blocked by the courts prior to that date.
John Falcone and Luke Malloy handle employment law matters at PLDR Law. Feel free to contact us if you have questions about this matter.