Avoiding the Payment of Overtime is About to Get Much More Expensive

In a blog post this past March about which employees must be paid overtime for working more that 40 hours in any one work week, I mentioned that President Obama had directed the U.S. Department of Labor (the “USDOL”) to review the exemptions from the overtime pay requirement and that most knowledgeable commentators expected the minimum salary requirement for the two main exemptions, administrative and executive employees, to be increased significantly.  Last week, we found out just how significant that increase was going to be.  On July 6, the USDOL issued a Notice of Proposed Rulemaking in which it proposed raising the minimum salary that must be paid to a worker before they could be an exempt administrative or executive employee from $455 a week to $921 a week.  That would result in an annual salary increase from $23,660 to $47,892, more than double.

Not only would the annual salary required for a worker to qualify as an exempt administrative or executive employee more than double immediately, it would continue to rise over time automatically.  The USDOL’s proposed new rule would link the minimum required salary to the 40th percentile of weekly earnings for full-time salaried workers.  As the amount of salary earned by that percentile of workers increased, so would the required minimum salary for exempt administrative and executive employees.  The USDOL estimates that doing this would increase the required minimum salary to a little over $50,000 in 2016.

The proposed rule does not change any of the other requirements for the administrative and executive exemptions, but it requests comments on whether and how those requirements might be changed.  The period for making such comments and comments on other aspects of the proposed rule expires on September 4, 2015.  After that, it will be up to the USDOL to review the comments submitted and then propose a final rule.  There is no need for action by Congress to make the final rule effective.  Most commentators expect a final rule to become effective sometime in late 2015 or early 2016.

What this means for agency and other business owners is that if any of your employees have been classified as exempt from the overtime pay requirement as an administrative or executive employee, they will have to be paid at least $921 a week, or $970 a week depending on when the new rule becomes final, to remain exempt from that  requirement.   Any of my readers who have such employees should begin planning now for any necessary pay increases or changes to their jobs to reduce the hours worked below 40 in any one work week, if it will not be feasible to meet the new minimum salary requirements.