Overtime: It Just Keeps Changing Over Time

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If you are feeling a twinge of déjà vu reading an article on yet another proposed overtime regulation, you are not alone. On March 7, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking that would raise the minimum salary level below which employees could receive overtime pay if they worked more than 40 hours per week. The proposal increases the new salary threshold from $455 per week to $679 per week, or $35,308 per year, expanding eligibility to more than one million workers. According to a DOL press release, Secretary Alexander Acosta said the change would bring “common sense, consistency and higher wages to working Americans.”

Historical Framework

In 1938, Congress passed the Fair Labor Standards Act (FLSA), which provided that employees are entitled to overtime pay at one and one-half times their “regular rate” of pay, for all hours worked over 40 in a week. There are a number of “white collar” exemptions to the overtime pay requirement, including, without limitation, for employees in executive, administrative and professional capacities. To qualify for a white collar exemption, an employee must 1) be paid on a “salary basis” (without regard to the quality or quantity of work performed); 2) be paid the minimum salary level; and 3) satisfy certain duties, depending on their job function. It is only requirement 2, the “salary level,” that DOL again seeks to change. In order to understand the proposal, it is important to take a look back at how the salary level test has changed over the years.

Current Salary Level

As noted above, the current minimum salary level an employee must meet in order to qualify for an exemption is $455 per week, or $23,660 per year. In other words, employees who make less than this are entitled to overtime pay under the FLSA. This level has been in place since 2004.

2016 Proposed Revision

In 2016, DOL issued a Notice of Proposed Rulemaking seeking to double the salary level threshold, to $921 per week or $47,892 annually. That proposal also included an automatic update every three years, starting January 1, 2020, and was set to take effect December 1, 2016. It was expected to entitle at least four million more workers to overtime pay. 

At the time, employers spent countless hours analyzing their workforces to determine the economic impact of the rule. But on November 22, 2016, Judge Amos Mazzant, in the Eastern District of Texas, issued an injunction in the matter of State of Nevada v. U.S. Dep’t of Labor, 218 F. Supp. 3d 520 (E.D. Tx. 2016), temporarily enjoining the implementation of the new overtime rule nationwide. The appeal of Judge Mazzant’s order was ultimately stayed pending further review by the DOL.

2019 Proposed Revision

After receiving over 200,000 comments, DOL’s latest proposed revision sets a salary threshold in a more mitigated fashion than the 2016 proposal did, raising the level to $679 per week, or $35,308 annually. Other proposed changes include:

• Increasing the “highly compensated” employee exception from $100,000 to $147,414 per year;
• A periodic review of the salary level threshold, but with a requirement that any update be subject to notice and comment (no automatic adjustments);
• Nondiscretionary bonuses and incentive payments (including incentives) may be included to comprise up to 10 percent of the salary, assuming they are paid at least annually; and
• No proposed changes to the job duties test

Next Steps for Employers

Employers should again begin the process of analyzing their workforces to determine how many employees will fall into the new salary level threshold and the economic impact of making such changes, as well as planning the roll out process. The rule is expected to take effect January 1, 2020. However, it is yet to be seen whether this change will, like the 2016 proposal, be subject to judicial review.

*This article originally appeared in the Association of Corporate Counsel-South Carolina 2019 Spring e-newsletter.

Nikole Setzler Mergo is a trial lawyer with 20 years of experience representing some of South and North Carolina's largest manufacturers, health care providers and financial institutions, as well as locally-owned businesses. Nikole is also the Managing Partner of Nexsen Pruet’s Columbia office. She provides business and employment litigation defense, as well as daily employment law advice and counseling, to a number of corporate clients on issues involving virtually all aspects of employment law. She regularly represents companies before the District Courts of South and North Carolina and in federal courts across the country, the EEOC and SHAC, the OFCCP and the Department of Employment and Workforce. Nikole works for clients in both South Carolina and North Carolina, defending them in litigation across the country.