Update - Proposed New Overtime Rule - The Wait is Almost Over

The Garden Center Group Clients:

On Tuesday, March 15, the Department of Labor (DOL) took the final step in the rulemaking process by advancing the Notice of Proposed Rulemaking (NPRM)  (commonly referred to as the "Overtime Rule") to the Office of Management and Budget (OMB) for review of the final changes.

Among other provisions, the proposed Overtime Rule will increase the minimum guaranteed salary level for employees classified as exempt from overtime under the Exemption, Administrative, and Professional White Collar Overtime Exemptions. To date, there is no indication of what the final changes are.

The OMB review period can take anywhere from a few weeks to several months; however, Tammy McCutchen, former Department of Labor, Wage and Hour Division Administrator, believes that the rule will pass through the OMB process quickly and the Final Rule will likely be published in the Federal Register by July 7with an effective date on Labor Day, September 5.

As an alternative, McCutchen said that the Final Rule could be published immediately prior to Labor Day with an effective date of November 1--conveniently, just before the election.

In addition to ensuring that the Final Rule takes effect before the election, the current administration must move quickly to protect the rule from revocation, given the potential for a Republican President to be elected.  Under the Congressional Review Act, laws and rules that are passed in the final 60 legislative days before a new Congress is installed are subject to being revoked by way of a joint resolution from both houses of Congress and the President.

In response to the DOL's advancement of the NPRM, on March 17 Republicans in the House and Senate introduced legislation (S. 2707 and H.R. 4773) that, if passed, would effectively nullify the proposed rule and prevent employees from filing wage claims against employers that fail to comply with the Final Rule.

The legislation--called The Protecting Workplace Advancement and Opportunity Act--also includes requirements that the DOL would have to meet for any future changes pertaining to the White Collar Overtime Exemptions including, among others, the requirements to provide a minimum of one year for employers to comply after a Final Rule with changes to the White Collar Overtime Exemptions is published. The DOL would also be prevented from issuing a rule with automatic increases to the minimum salary level test and from changing the duties tests without including specific text about the changes in the proposed rule.

While the bill may not pass, it could slow down the OMB process enough to move the date for publishing the Final Rule inside the 60-day window that gives a new incoming Congress the opportunity to move for revocation of the rule under the Congressional Review Act.

As Washington D.C.'s own version of March Madness plays out, we recommend that employers operate under the premise that the Final Rule will be published on July 7, the earlier of the two dates.

The short 60-day period gives employers little time to implement salary increases and other changes that will be necessary in order to comply with new White Collar overtime exemption rules.

To adequately prepare, we recommend that you review pay plans, position classifications, pay rates, and compensation practices to identify the most likely changes affecting salaried exempt positions.

The most impactful change may be the new salary amount for employees who meet the duties tests under the Executive, Administrative, or Professional overtime exemptions, but who do not meet the new salary level test. The NPRM proposed a guaranteed salary level of $50,440 annually--more than double the current salary rate. This rate could change in the Final Rule; however, we expect it will be relatively close to this amount.

Other changes that may be necessary include:

  • Transitioning select employees who are paid a salary but who do not meet the duties tests associated with an overtime exemption to an hourly or another nonexempt pay plan.

  • Implementing new recordkeeping practices for employees who are accustomed to being paid a salary.

  • Imposing restrictions on work hours to curb overtime for employees who may now be eligible to receive it.

  • Revising fringe benefit policies (vacation, holidays, sick time, PTO, etc.) with eligibility criteria tied to exempt/nonexempt classifications.

  • Adjusting bonus or incentive plans for employees in salaried exempt positions who qualify for the bonus or incentive, but who must receive an increase in pay to meet the salary level test.

  • Changes to pay ranges in compensation plans.

  • Revising performance management programs to account for DOL-required annual increases for exempt employees who are paid the minimum salary level.

  • Restructuring bonus or incentive plans to (limited) bonus earnings can be credited toward the salary level test.

Group Clients can contact our office with questions pertaining to these and other changes.
We will continue to follow the NPRM through its regulatory journey on the home stretch to publication and will provide updates as they become available. In the meantime, if you have questions or if you are interested in arranging for an audit of your compensation practices, let us know.

Jean Seawright
Seawright & Associates
Tel: (407) 645-2433
[email protected]


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