WHAT A CHANGE IN OVERTIME RULES MAY MEAN FOR EMPLOYERS
March 30, 2022
Next month, the U.S. Department of Labor is expected to propose a revision of the Fair Labor Standards Act regulations regarding the overtime salary threshold. The threshold is one of the factors used to determine whether a salaried employee is exempt from overtime pay for hours worked in excess of 40 hours per week. The salary threshold establishes the minimum annual salary an employee must be paid to be classified as exempt from overtime, currently $35,568. That figure is considered by many economic experts to be well below where it should be.
In 2016, President Obama signed off on a plan to raise the threshold to $47,500, with automatic increases built in to escalate that number every three years. The rule was ultimately blocked by U.S. District Judge Amos Mazzant III, who sided with arguments that the cost to the government and the burden on business owners would be too great.
In the wake of COVID-19 and the shifting attitudes toward the workplace, best emblemized by “The Great Resignation,” there has been a push to revisit the issue of the overtime threshold. The expectation by many is that, next month, the DOL will recommend an increase similar to what President Obama put forth in 2016.
As a firm that represents businesses of all shapes and sizes across a wide range of industries, our clients are concerned as to the impact on their business operations if an increased threshold is implemented.
Employers need to work with their trusted professionals to review their workforce and determine how much of an impact an increase on the threshold would have on their operations. For many businesses, there may be no impact at all. If you run an operation where salary exempt or hourly employees don’t exceed 40 hours in a work week, overtime under the FLSA is largely a non-issue. If you operate a business where the majority of your currently salary exempt workers who are working in excess of 40 hours per week are high earners (above the $50,000/year mark), again this is largely a non-issue.
But, if a review of your workforce and payroll reveal that you have a significant number of employees, currently classified as salary exempt, earning between $35,568 (the current threshold) and whatever the potential new threshold might be (let’s say the $47,500 that was proposed back in 2016) who regularly work more than 40 hours in a work week, those employees would become eligible for overtime for all hours above 40 worked in a week.
Employers may consider each of three basic options to address issues which may arise if the threshold is increased:
- Raise the salaries of employees that are in the gap zone up to the new threshold, thus eliminating the requirement to pay overtime.
- Make clear to the affected employees in that in-between salary range that they are not authorized to work overtime, absent express authorization to do so by a particular supervisor.
- Continue business as usual and budget for the increased cost of paying overtime to the affected employees.
Which option an employer chooses in dependent on a variety of factors unique to their business. We work closely with our business clients to understand their operations and counsel them on their options, helping them decide what makes the most sense from a strategic standpoint.
If you have questions or concerns about how potential changes to the salary threshold could impact your business, give me, or any member of our labor and employment team, a call.
To read the government’s strategic plan to introduce this change, click here.
Mr. Carlin’s practice includes wide ranging federal and state court experience in civil litigation within employment law, environmental defense, class actions, product liability defense, corporate dissolution and shareholder disputes, “business divorce,” breach of contract, OSHA and insurance coverage disputes.
He can be reached at 716-854-4300 ext. 240 or [email protected]
