New Overtime Salary Rules Effective January 1, 2020
The Trump Administration’s Department of Labor has announced the final revised Overtime Rule for salaried employees, which will set the minimum salary required for the Executive, Administrative, and Professional overtime exemptions. The new overtime rule sets the minimum yearly salary for exempt employees at $35,568 or $684 per week, versus the current salary requirement of $23,600/year or $455 per week.
This, as expected, is much lower than the minimum salary of $47,476 proposed by the Obama administration. It is also far below the $55,000 it would have been had the salary been adjusted for inflation since 1975. The Obama rule would have entitled 4 million more workers to overtime pay. Under the new Trump rule, only 1.3 million workers are projected to gain overtime pay. This is yet another example of the Trump Administration dismantling Obama-era regulations designed to protect more workers.
The new rule is effective January 1, 2020.
In addition to increasing the minimum salary required for exempt employees, the new rule also:
- Allows employers to count non-discretionary bonuses, incentives and commissions as up to 10% of an employee’s salary
- Increases the threshold for highly-compensated employees from $100,000 to $107,432
- Does not include “automatic” updates to the salary amount to keep pace with inflation
Special Note about Puerto Rico. The overtime pay law in Puerto Rico as of January 1, 2020 will be a bit different due to the current economic climate on the island. First, the new higher minimum salary requirement for overtime exemption will not apply to Puerto Rico employees, so the minimum salary requirement in Puerto Rico will remain at $455 per week. Second, the use of non-discretionary bonuses and incentive payments and the salary increase for Highly Compensated Employees will apply to workers in Puerto Rico.
THE HISTORY THAT LEAD UP TO THE NEW OVERTIME RULE
Department of Labor Appeals
On October 30, 2017, an appeal was filed on behalf of the Department of Labor. This appeal to the Court of Appeals for the Fifth Circuit will likely be put on hold while the Department of Labor completes the process of rulemaking to determine what the Trump administration will deem the new (lower) minimum salary level should be for exempt employees. Based on the available information, the appeal looks like an effort to provide more time to revise the overtime salary rule and to protect the DOL’s authority to set a salary threshold for exempt employees at all.
Trump Administration Dismisses Appeal of New Overtime Rules
On September 5th, 2017, five days after a federal judge in Texas ruled that the Department of Labor exceeded its authority by putting too much emphasis on salary level versus job duties to determine overtime eligibility, the DOJ moved to dismiss its appeal of the judge’s prior ruling that blocked an increase of the salary threshold to $47,476 per year. The appeals court quickly granted the motion to dismiss the overtime rules change appeal.
The DOJ could still appeal this latest decision, however, as the administration might not agree with parts of the decision that seem to limit the Labor Department’s authority on federal overtime laws. The new decision does not make clear how much authority the secretary of labor has, merely finding that the $47,000 per year is too high – without explaining why it’s too high or what threshold would be acceptable.
Appeals Court Extends Time – Giving Trump Administration More Time to Decide if it will Support New Overtime Rules
On February 22nd, 2017, the 5th Circuit Court of Appeals extended the deadline for the federal government to submit its arguments to May 1st. This gives the Trump administration some additional time to decide what its position will be regarding the new overtime pay rules (implemented by the Obama administration) that significantly increase the minimum salary requirement for exempt workers. So far, the Trump administration has not made clear if it will support the new rules and continue the appeal – or if it intends to drop the effort to increase the required salary amount for salaried employees to be exempt from the overtime pay laws.
Continue to check back here for further updates as the case progresses.
Department of Labor Appeals Court’s Decision to Block New Overtime Rules
On December 1, 2016, the Department of Labor filed an appeal of the district court’s decision to block the implementation of the new overtime rules which would raise the minimum salary required for the Executive, Administrative, and Professional exemptions.
The DOL argues that Judge Mazzant’s decision is wrong in light of prior 5th Circuit and U.S. Supreme Court decisions and would invalidate all versions of the salary level test that have been used for the past 75 years.
For 75 years the DOL has been issuing regulations that require workers to meet a combination of three tests—a salary level test, a salary basis test, and a duties test in order to be classified as an exempt executive, administrative, or professional (EAP) employee.
A date for oral argument has not been set but the appeals court has stated that it will be scheduled for the first date available after all briefing by the parties is done.
Continue to check back here for further updates as the case progresses.
Judge Blocks New Overtime Rules from Taking Effect.
On Tuesday, November 22,2016, a federal judge in Texas blocked the changes to the salaried Executive, Administrative, and Professional exemptions that were set to take effect on December 1, 2016. The injunction is part of a pending case brought by 21 states, including Texas, Arizona, New Mexico, Ohio, Michigan, and others, asserting that the new rule is unlawful. The states claim that the Department of Labor exceeded its authority by substantially increasing the minimum salary requirement for exempt employees and by including an automatic adjustment of the required salary amount every three years. The details on the new rules on overtime pay for salaried employees are below.
The big question going forward is what will a Trump Department of Labor do? Unfortunately for workers who expected an increase in pay, there is a strong likelihood that a Trump controlled DOL will not devote resources to defending the Obama DOL’s new rules. This is one instance in which Trump has an immediate opportunity to make good on his promise to eliminate regulations put in place by Obama, even though the result is to deprive middle class workers of the higher wages he promised to deliver.
Continue to check back here for further updates as the case progresses.
The Latest Update on When the New Overtime Rules for Salaried Employees Go into Effect.
The Department of Labor announced publication of the final rules on May 18, 2016. The new overtime rule changes will go into effect on December 1, 2016.
Here are the Big Changes for Federal Overtime Laws:
The federal overtime pay law has been changed to increase the wage threshold for “white collar” employees to qualify as salary exempt.
- Minimum salary set at $913 per week, or $47,476 per year.
- Highly compensated employee (HCE) exemption set at $134,004 per year.
Background
In March 2014, President Obama proposed sweeping changes to the Fair Labor Standards Act (FLSA). The president wanted new overtime pay laws that addressed the problem of salary exemptions for low level workers, which required them to work more than 40 hours a week without overtime compensation. Under the Department of Labor’s new overtime pay laws, nearly 11 million workers, primarily in health, education and retail positions, will qualify for overtime pay.
What Were The Proposals of the Overtime Rules Change?
The federal overtime pay law would be amended to increase the wage threshold for salary exempt status in three ways.
- Minimum salary set at the 40th percentile: The new overtime law guidelines establish that workers must be in the 40th percentile or above of the average of all salaried workers to qualify for exempt status. Currently, the wage limit is only $455 per week, or less than $24,000 per year. With the proposed change, that limit will increase to $970 per week, or about $51,000 per year. Workers whose salaries do not qualify for the exemption must be paid overtime for more than 40 hours, with limited exceptions for workers in designated roles, such as teachers, doctors and lawyers
- Highly compensated employee (HCE) exemption set at 90th percentile: At the upper end, the new Federal overtime pay laws address the concerns of HCEs by creating a second threshold for exempt status at the 90th percentile. HCEs must receive a total compensation package of at least $122,148 for their labor to be considered exempt
- Future changes linked to inflation or percentile: Though the other changes are substantial, the proposal seeks to eliminate the need for future changes by tying the salary exemption level to inflation or the percentile, as calculated by the Bureau of Labor Statistics
What Was Under Consideration with the Overtime Rules Change?
Under current federal overtime laws, workers only qualify for salaried exemptions if their primary duties are executive, administrative or professional. The problem is that employers often pay an employee on a salary basis, and then expect that employee to fulfill non-exempt roles. For example, according to current overtime laws, a convenience store manager does meet the salary requirements for exempt status; however, a significant portion of that manager’s day might be spent working a cash register, stocking the shelves, or cleaning the store, all of which are non-exempt duties. A change to the “duties test” might limit the number of hours spent on non-exempt work to 50 percent of total hours, though the number may need to be higher, in order to reflect the reality of the workplace.
What Does This Mean For Overtime Pay for Salaried Employees?
The overtime law changes are coming as soon as June 2016, and there’s good news and better news in regard to overtime pay for salaried employees. The good news is that the changes are expected to reduce time spent litigating exempt status abuse, as the DOL anticipates the salary test to be the chief identifier of exempt status. The better news is that almost 11 million workers, who previously received a salary and no overtime pay, will become eligible for overtime as soon as the new overtime pay laws go into effect. To avoid paying overtime, employers will either have to raise wages or hire new workers so no one approaches overtime.
The new overtime laws will impact the lives of thousands of workers in Texas and nationwide. Contact the Lore Law Firm for more information or to file a claim if your employer has violated the overtime laws.
