What is the Overtime Proposal and Why Should I Care?

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July 7, 2015

By now you probably have heard that the U.S. Department of Labor (DOL) has issued a “proposed rule and request for comments” regarding overtime eligibility.  For those of you who want to chat intelligently about this topic at cocktail parties—but would prefer not to read the entire 295-page proposal—we offer the following FAQ:

What is the big deal about this proposal?

While the proposed rule contains many provisions, its affect on overtime eligibility is the most controversial.  Under current law, an employer need only pay certain white collar employees $455 per week ($23,660 annually) to avoid paying overtime.  The new proposal calls for an increase in the current minimum salary threshold to $970 per week ($50,440 annually), with automatic threshold increases thereafter.  The DOL estimates that this change will affect nearly 5 million workers who currently are not eligible for overtime.

By way of example, in many industries (e.g, retail, fast food, gas stations) it is not uncommon for managers to earn annual salaries far below the proposed $50,440.  If the rule becomes final, employers will need to either increase manager salaries or be prepared to pay overtime to those workers.

Where does the DOL get the authority to issue this proposal?

The DOL cannot create new law.  The Fair Labor Standards Act (FLSA) is the law that guarantees minimum wage and overtime for certain workers.  However, the FLSA, passed by Congress and signed into law by President Franklin D. Roosevelt in 1938, specifically gives the DOL the authority to “define and delimit” the terms of the FLSA that exempt certain workers from overtime pay.  Since 1938, the DOL has updated the exempt salary level requirements 7 times, most recently in 2004.

So, the DOL can change the rules however it wants regarding overtime?

Not quite.  The DOL’s rulemaking authority is limited.  After a rule becomes final, individuals and corporate entities may go to the courts to make a claim that a rule is unconstitutional, was made without following the notice‐and‐comment process, was arbitrary, or an abuse of discretion.  In sum, the courts have the power to trump the DOL and invalidate a rule if the DOL goes beyond the authority delegated by the FLSA.

What happens next?
In the coming days, the proposed rule will be published in the Federal Register (a/k/a the Federal government’s newspaper).  This will trigger a 60-day “comment period.”  Any member of the public can submit a comment regarding the proposed rule.  The DOL will review all the comments.  If the comments include excessive questions and/or criticisms, the DOL may decide to terminate the proposal or change aspects of the rule to reflect these new issues.  If the changes are major, the DOL could publish a “supplemental” proposed rule.  If the changes are minor the agency may proceed with publication of the final rule.

How long is all this going to take?

It is difficult to predict how long it will take for the DOL to review submitted comments.  In general, the process from proposed rule to final rule can take a year or longer.

What should employers do now?

Now is a good time for employers to audit all positions to make sure employees are properly classified as exempt/non-exempt in accordance with current law.  The widespread press about the proposed rule might cause employees to question whether they are currently eligible for overtime.  For more information on how to make sure you are compliant with the FLSA, contact your favorite employment law attorney.

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