New Proposed Rule to Could Significantly Affect Employee Pay Rates

Employers should be aware that the federal Department of Labor will be sending a new Proposed Rule to the President, which, if finalized, will significantly affect employee pay rates, both regular and overtime. The President is expected to approve it.

The Proposed Rule increases the minimum annual salary test under the Fair Labor Standards Act for satisfying the “white-collar” exemption from overtime obligations to $35,308, from the current $23,660. To qualify for the exemption under the Proposed Rule, employees will have to be paid a salary at or above the new minimum, and the job must meet certain duties tests. The Proposed Rule does not make any change to the current duties test. Employees who are not paid a salary at the new minimum salary will have to be paid 1-1/2 times their regular hourly rate for hours worked in excess of 40 hours in a workweek. As with the current Rule, employees must be paid a “salary,” which is paid regardless of hours actually worked in any given workweek.

The new Rule is expected to cover more than a million workers currently exempt from overtime obligations, which means they would become nonexempt (i.e., would have to be paid for overtime) if their salary is not increased to the new threshold. Employers will have to calculate for each employee and determine whether it makes more economic sense to increase an employee’s salary to the higher exemption rate and keep the employee as “exempt” from overtime requirements, or maintain a current salary below the exemption level and pay overtime. Obviously, the amount of and regularity of an employee working overtime will be the most significant financial aspect of that decision, but Employers should not overlook the emotional aspect of workers thinking of themselves as “white collar.” If an Employer decides not to adjust a currently exempt worker's salary to retain the exemption, the Employer also might want to consider changing the worker’s pay from salary to hourly.

The Proposed Rule also would raise the minimum salary for highly compensated employees from the current $100,000 to $147,414. A “duties” test also exists for this exemption to apply and, again, the Proposed Rule does not alter that test.

Employers also should bear in mind any state laws that deal with minimum wage and overtime issues. We will keep our clients and friends updated as the Rule is considered by the White House.