May 11, 2016

Update: Final overtime rule headed to Office of Management and Budget

Since our last Client Alert, the U.S. Department of Labor (DOL) is one step closer to expanding the reach of overtime pay to many lower-paid, otherwise exempt employees. On March 15, the DOL sent its draft Final Rule amending the Fair Labor Standards Act to the White House’s Office of Management and Budget (OMB) for review. Typically, the OMB takes between 30 to 60 days to complete its review of agency rulemaking.

Although the specifics of the DOL’s Final Rule will not be available to the public until the OMB completes its review, most anticipate that the Final Rule will track the earlier proposed rule. Most believe the Final Rule will increase the salary threshold for exempt status from $23,600 to $50,440/year. This increase could impact millions of lower-paid administrative, executive and professional employees who currently are exempt from overtime. With this higher salary threshold, more employees will become entitled to “time and a half” for hours worked over 40 in a workweek. It also is anticipated that this salary threshold will be annually indexed for inflation. In addition, most expect the highly compensated employee threshold to increase from $100,000 to $122,148.

Once the OMB completes its review, the DOL’s Final Rule still may face legal challenge or fall to Congressional disapproval. Under the Congressional Review Act, lawmakers are afforded time to review and potentially disapprove a new agency rule. If Congress votes to disapprove the DOL’s Rule, President Obama could veto Congress’ disapproval, which veto would then require a 2/3 majority to override. With the upcoming change in administration, delay may benefit those who challenge the Rule. Indeed, in March, House and Senate Republicans introduced the Protecting Workplace Advancement and Opportunity Act (S.2707/H.R. 4773), which, if passed, would nullify the Rule and require the DOL to conduct an economic analysis of the impact of proposed changes before issuing a new rule.

With the OMB review not complete, but change potentially imminent, employers—at a minimum—should be developing plans for all employees earning less than $50,400/year ($970/week). The new Rule could mean changing the way in which these employees are paid and track their time. Employers may need to either increase the salaries of these currently exempt employees to meet the new salary threshold or develop contingency plans to pay or avoid paying overtime. Some employers may choose to hire additional employees to limit how frequently employees work over 40 hours a week or otherwise change job requirements to avoid the expense of overtime pay. However, best practices would encourage all employers in this waiting period to use the time to review their employees Fair Labor Standards Act classifications and salary structures. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Jeralyn H. Baran, Principal