The New Overtime Rule: How It Might Impact Employers

Now that the Trump administration has a new overtime rule that looks like it might be adopted, it is time for employees to sit up and take notice. Though they have been spared much of what was bad about the previous rule, this new rule still means changes are coming.

We do not yet know what the rule will look like in its final iteration. However, we do know of its most important components. These are as follows:

  • An increased minimum salary threshold
  • An increased HCE threshold
  • No automatic threshold increases
  • No changes to the duties requirements
  • The ability to count non-discretionary bonuses and incentive payments.

Companies should begin reviewing the proposed rule now so that they are prepared to comply in the event it is implemented at the start of the new year.

 

Increasing the Thresholds

The key component of the new proposed rule is the increase in the minimum threshold for exempt workers from $23,660 to $35,308 annually. Under the rule, any currently exempt workers making less than the threshold must be reclassified as nonexempt and paid appropriate overtime.

Federal law requires paying nonexempt employees 1.5 times their normal pay for all hours worked in excess of 40 during a given workweek. This applies to both hourly and salaried employees alike.

Interestingly, the higher threshold for the Highly Compensated Exemption (HCE) under the Trump rule is higher than it was in the Obama rule. The Obama administration increased the threshold to $134,004 annually. The Trump rule increases it to $147,414. The net effect is the same for those who qualify under the higher threshold.

 

The Same Duties Requirements

While employers may not be happy with higher thresholds, they can take comfort in the fact that there will be no changes to the duties requirements. This is good news in that the former rule would have introduced an overly complex system of new tests that would have made it difficult for employees to understand who was truly exempt.

No new requirements mean that employers can rely on the same qualifying standards they currently utilize. As you know, there are three exemptions in addition to the HCE: the executive, administrative, and professional exemptions. All three will still be available using the same duties requirements employers have used all along.

 

Reclassifying Employees

The biggest change for employers, should this new rule go into effect, is the obligation to reclassify some employees. There is no need to reclassify as of yet, but employers should start looking at the possibility now. Moreover, they should also be looking at alternatives just in case reclassifying a large number of currently exempt employees would mean financial hardships in the new year.

It is expected that implementation of the rule will force some companies to limit or completely prohibit overtime. Other employers might shift work from newly nonexempt employees to others still classified as exempt in order to avoid overtime pay.

 

Stiff Penalties

One last thing to keep in mind is that Uncle Sam does not appreciate employers who willfully violate the FLSA – particularly its overtime pay provisions. Employers found in violation of the law are required to pay back wages at the very least.

If a court decides violations are willful, criminal prosecutions and hefty fines are usually the result. Initial fines of up to $10,000 are possible, with additional fines of $1,100 per incident for future violations. In other words, not paying required overtime is a risk not worth taking.

Time will tell if the new rule becomes official. Start planning for it now, just in case.