New Overtime Law Rejected

*Please note that this article pertains to the DOL overtime law that was proposed (and later rejected) in 2016. To learn about the actual, finalized overtime rule that took effect January 1, 2020, go to: https://stratus.hr/2019/09/25/final-overtime-rule/.

A district court recently rejected the Department of Labor’s (DOL)’s new overtime law that would have resulted in a higher income threshold for exemption status. Had this law passed, any employee falling under the new salary level of $47,476 would have qualified for overtime wages, regardless of their job duties. For now, however, the existing salary threshold remains intact of $23,600, meaning employees whose job duties, functions, or tasks *satisfy exemption status AND make more than $23,660 are NOT required by law to be paid overtime for hours worked in excess of 40 per week.

The "Final Rule" was challenged late last year prior to its implementation and was put on hold until the district court could review the case. The court’s September 2017 review resulted in the issuance of its own “final rule” on the overtime law, rejecting the case in its entirety.

Why was the DOL "Final Rule" rejected?

First, we need to explain the background of the "Final Rule." The Secretary of Labor was initially tasked to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.” After receiving more than 293,000 comments on the proposed rule, the DOL decided to raise the minimum salary level for exempt employees to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region of the nation (the South), which was $47,476. Had the law been implemented, any employee making less than $47,476 per year would have been eligible for overtime payment if he or she worked more than 40 hours in a week, regardless of job duties. Additionally, the new overtime law created an automatic system to adjust the minimum salary level every three years based on inflation.

Per the FLSA, the focal point of exemption status should be an employee’s job duties, functions, or tasks, with the salary amount acting as a secondary point of consideration. However, the significant increase to the minimum salary amount for exempt employees bumped the focal point of exemption status to salary amount, making an employee’s job duties, functions, or tasks irrelevant if an employee fell below that minimum salary level. (In fact, had the "Final Rule" passed, an estimated 42 million workers would have instantly become non-exempt, even though their job duties had not changed.) This was the basis for rejecting the new overtime law.

Will the minimum salary amount for exempt employees be adjusted still?

This is the question on most employers’ minds – and the answer is, possibly. The DOL published a Request for Information on July 26, 2017, asking for the public’s input to create a revised proposal. The request asks for some complex information, including questions “related to the salary level test, the duties test, varying cost-of-living across different parts of the U.S., inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary level, the salary test for highly compensated employees, and automatic updating of the salary level tests.” Employers have until September 25, 2017, to submit their feedback.

What does the DOL "Final Rule" rejection mean for employers right now?

1. Employers whose businesses adhere to the federal guidelines rather than some stricter state or local guidelines (such as New York and California) do not need to increase minimum salary amounts for exempt employees yet. As always, be sure to check state and local laws that may have higher standards than the federal level.
2. If you adjusted employee wages last year in anticipation of the increased minimum salary threshold, you surely helped with retention and morale but cannot legally recoup those additional wages that have already been paid. In fact, employers seriously considering any return to previously-held salary amounts may want to first discuss possible ramifications with their HR consultant.
3. If you recently reviewed your employees’ exempt vs. nonexempt status and made adjustments to be compliant with the FLSA, we commend you for being proactive. Although the process can be time consuming, cleaning up misclassified employees can protect your company from unnecessary penalties and litigation.
4. If you have yet to review your workforce’s classifications, focus first on the employee’s job duties, functions, or tasks to determine exemption status. If you need assistance with classifying employees as exempt or nonexempt, please contact your HR consultant.
5. Provide feedback to the DOL if you want to voice your opinion on the matter. But do it before September 25, 2017!

*For more information about what specific job duties qualify for exemption status, please contact us.

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