New Salary Threshold Will Entitle Some Salaried Employees to Overtime Pay

On January 1, 2020, more employees will be entitled to overtime wages, thanks to a revised rule enacted by the Department of Labor. While the rule will affect fewer employees than a rule that was passed, and subsequently blocked by a federal court, during the Obama administration, the new rule is expected to benefit about 1.3 million workers.

Overtime Entitlement

The federal Fair Labor Standards Act (FLSA) sets minimum wage and overtime requirements for all businesses engaged in interstate commerce. Federal courts have given an expansive definition to “interstate commerce,” so most employees are covered by the FLSA.

The FLSA’s minimum wage and overtime standards represent a “floor” that apply across the nation. When state law sets lower (or no) standards, employers must obey the FLSA. When state law is more beneficial for employees, however, employers must obey state law.

The FLSA requires overtime compensation to be paid when an employee works more than 40 hours in a workweek. Compensation for overtime hours is 1.5 times the employee’s regular rate of pay.

Overtime compensation must be paid to nearly all employees who are paid an hourly wage. Some salaried employees are exempt. The overtime exemption applies when two tests are satisfied. First, the salary must equal or exceed a defined threshold. Second, the employee’s job duties must meet specified criteria. The most common criteria apply to administrative, executive, and professional employees who exercise significant discretion and enjoy substantial independence in the performance of their jobs.

The threshold salary was set at $23,660 ($455 per week) in 2004. During the Obama administration, the Department of Labor enacted a rule raising the threshold salary to $47,476 ($921 per week). The Department explained that it “set a salary threshold at a level reflective of employees who historically have received overtime protections from those who have not.” The rule would probably have increased the wages of 4.2 million workers by assuring that they were paid overtime.

A federal judge in Texas blocked the rule, ruling that the increase exceeded the authority that Congress granted to the Department of Labor. The judge seemed to accept that the Department could set a threshold salary, but could not increase it so substantially. The court’s strained reasoning resulted in a nationwide injunction against enforcement of the rule. The commentators who typically decry nationwide injunctions when they interfere with favored causes were notably silent with regard to the Texas judge’s action.

New Rule Adopted

The Justice Department appealed the judge’s ruling, but changed its position after President Trump was elected. Perhaps fearing an appellate ruling that would have reinstated the rule, the Justice Department asked the appellate court to withhold ruling until the Labor Department could create a new rule.

The new rule increases the threshold salary to $35,568 ($684 per week). While the Obama administration’s rule required automatic updates of the threshold salary every three years, the new rule does not provide for updates.

The new rule gives employers an incentive to pay a fixed salary to employees who are now paid an hourly rate of $17.10 an hour (resulting in gross pay of $684 per week if no overtime is worked). While employees must still satisfy the job duties test before they can lawfully be classified as exempt from overtime, the exemption is widely abused. Employers have often given job titles like “Executive Assistant” to salaried positions in order to exempt them from overtime, even though the actual job duties associated with the title do not include the discretion and independence that characterize a bona fide exemption.

Salaried employees who are closely supervised, who have no supervisory authority of their own, and who have little managerial responsibility should consult an employment lawyer if they are not paid for their overtime hours. Salaried employees may learn that they are entitled to double their back pay for the overtime hours they worked without receiving extra overtime compensation.

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