The U.S. Department of Labor reportedly has sent a proposal for new white-collar exemption regulations, the federal overtime rule, to the White House Office of Management and Budget for review.

Issued under the Fair Labor Standards Act, these regulations implement exemptions from the overtime pay requirements for executive, administrative, professional, and certain other employees.

The act requires employers to pay non-exempt employees overtime for all hours worked beyond 40 hours a week.

Once OMB completes its review, which may take several months, the new proposed rule will be published in the Federal Register, and the public will have an opportunity to comment.

How We Got Here

In May 2016, the Obama administration issued a controversial overtime rule revision, increasing the salary eligibility threshold for mandatory overtime pay to $913 per week (annualized at $47,476) from the current level of $455 per week (annualized at $23,660).

The move would have cost U.S. businesses more than $1 billion in labor costs by making many positions—previously considered executive, administrative, or professional—non-exempt and thus eligible for overtime pay.

However, in September 2017, a federal judge ruling in the U.S. District Court for the Eastern District of Texas overturned the Obama era rule, calling its revised salary threshold for establishing overtime eligibility "unreasonably high."

Judge Amos Mazzant said the Department of Labor overstepped its authority to establish a salary threshold by focusing too heavily on workers' pay, rather than job duties, to determine overtime eligibility.

It's unknown at this time if any of the objectionable aspects of the rejected 2016 proposal will be part of this new rule.
— CBIA's Mark Soycher
At the time, U.S. Labor Secretary Alexander Acosta suggested the department would issue a new rule with a more moderate salary threshold increase, possibly in the $600 to $650 per week range (low to mid $30,000 per year range).

Experts now expect that’s most likely where the threshold will end up.

The Devil's in the Details

"Employers have been expecting further action on this for some time, and those numbers should not be surprising, as the current salary threshold is outdated," says CBIA HR Counsel Mark Soycher.

"But, as is often the case, the devil's in the details. It's unknown at this time if any of the objectionable aspects of the rejected 2016 proposal will be part of this new rule."

Those problematic issues included an indexing function that would trigger automatic increases in subsequent years, variations based on region or industry, and possible changes to the duties test.

"Employers should be prepared for this, many of whom modified their compensation strategies in response to the prior proposal, which was pulled at the 11th hour by judicial ruling days before the rule was to take effect in late 2016," says Soycher.

"If the new increases turn out as predicted and are finalized soon, they may actually be preferable to the alternative should the rulemaking process be delayed further.

"If there were a significant delay, say, until after the 2020 election, and we have a new Democratic administration in Washington, there might be support for numbers more similar to those put forth in 2016."


Get the latest information on HR-related regulatory developments at CBIA's 2019 Human Resources Conference, March 21 from 8:30 a.m. to 4:15 p.m. at the Red Lion Hotel in Cromwell.