Notice of Proposed Rulemaking (NPRM): Overtime
Posted April 11, 2019
Brought to you by the insurance professionals at Horst Insurance
- The Notice of Proposed Rulemaking (NPRM) would make more than a million more American workers eligible for overtime.
- In developing the proposal, the Department received extensive public input from six in-person listening sessions held around the nation and more than 200,000 comments as part of a 2017 Request for Information (RFI).
- Commenters who participated in response to the Department’s 2017 Request for Information, or who participated at a listening session in 2018 regarding the regulations, overwhelmingly agreed that the currently enforced salary and compensation levels need to be updated.
- Under currently enforced law, employees with a salary below $455 per week ($23,660 annually) must be paid overtime if they work more than 40 hours per week. Workers making at least this salary level may be eligible for overtime based on their job duties. This salary level was set in 2004.
- This proposal would boost the proposed standard salary level to $679 per week (equivalent to $35,308 per year). Above this salary level, eligibility for overtime varies based on job duties.
- NPRM includes:
- The proposal increases the minimum salary required for an employee to qualify for exemption from the currently-enforced level of $455 to $679 per week (equivalent to $35,308 per year).
- The proposal increases the total annual compensation requirement for “highly compensated employees” (HCE) from the currently-enforced level of $100,000 to $147,414 per year.
- A commitment to periodic review to update the salary threshold. An update would continue to require notice-and-comment rulemaking.
- Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level.
- No changes in overtime protections for:
- Police Officers
- Fire Fighters
- Laborers including: non-management production-line employees
- Non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and other construction workers
- No changes to the job duties test.
- No automatic adjustments to the salary threshold.
Background on the 2016 Overtime Rule
- A 2016 final rule to change the overtime thresholds was enjoined by the U.S. District Court for the Eastern District of Texas on November 22, 2016.
- As of November 6, 2017, the U.S. Court of Appeals for the Fifth Circuit has held an appeal in abeyance pending further rulemaking regarding a revised salary threshold.
- As the 2016 final rule was enjoined, the Department has consistently enforced the 2004 level throughout the last 15 years.
Frequently Asked Questions
Q. What is the proposed rule about?
A. Using a commonsense approach and based on broad-based input, the Department proposes to update and revise the regulations that would make more than a million more American workers eligible for overtime. The Department is committed to an update of the 2004 overtime threshold, and this proposal would bring common sense, consistency, and higher wages to working Americans.
Q. Who would be exempt from overtime under this proposal?
A. To qualify for exemption, an employee generally must:
- be salaried, meaning that he or she is paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- be paid at least a specified weekly salary threshold (the “salary level test”), $679 per week; and
- primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations (the “duties test”).
Q. Why is the Department revising its overtime regulations?
A. At his confirmation hearings, Secretary Acosta committed to an update of the 2004 overtime threshold. This proposal would bring commonsense, consistency, and higher wages to working Americans.
In light of district court’s decisions enjoining invalidating the 2016 rule, public comments received in response to a July 26, 2017 Request for Information (RFI), and feedback received at public listening sessions held around the country to receive input on issues related to the salary level test, the overwhelming sentiment was that an adjustment was timely.
Q. What is the estimated economic impact of the proposed rule?
A. The Department estimates average transfers to employees to be approximately $429.4 million per year over the first ten years.
The Department estimates that average annualized direct employer costs will total approximately $120.5 million per year over the first ten years, including regulatory familiarization costs, adjustment costs, and managerial costs.
(Note: direct costs for employers under this proposed rule are expected to be $224 million less per year than under the 2016 rule.)
Finally, the Department estimates qualitatively that the proposed rule would prevent approximately 211 FLSA lawsuits per year, saving a total of $138.2 million per year in litigation costs.
Q. How many employees does the Department estimate will be impacted by the proposed salary level increases?
A. In Year 1, the Department estimates that 1.1 million currently exempt employees who earn at least $455 per week but less than the proposed standard salary level of $679 per week would, without some intervening action by their employers, become eligible for overtime. The Department estimates that an additional 201,100 workers who earn at least $100,000 but less than $147,414 per year, and who meet the minimal HCE duties test but not the standard duties test, would, without some intervening action by their employers, become eligible for overtime due to the proposed increase to the HCE total annual compensation level.
Q. How did the Department arrive at the proposed numbers?
A. The Department calculated the standard salary amount by applying the same method used to set the standard salary level in 2004—i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide. In applying this methodology, the Department specifically looked at Current Population Survey (CPS) earnings data from 2015-17 (the most recent data available at the time of the Department’s analysis), and projected the resulting rate forward to January 2020.
The methodology used to set the standard salary level in 2004 has withstood the test of time, is familiar to employees and employers, and can be used without causing significant hardship or disruption to employers or the economy.
For the HCE annual compensation level, the Department proposes to set the threshold equivalent to the 90th percentile earnings of full-time salaried workers nationwide.
Q. Under the proposed rule, may employers use bonuses to satisfy part of the new standard salary level test?
A. The Department proposes to allow nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary test requirement.
Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity and profitability. The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount attributable toward the EAP standard salary level is capped at 10 percent of the required salary amount. The Department is inviting comment on whether the proposed 10 percent cap is appropriate, or if a higher or lower cap is preferable.
Q. Does the proposed rule change how employers may use bonuses to satisfy the salary level for highly compensated employees (HCEs)?
A. No, the Department is not proposing changes to how employers may use bonuses to meet the standard salary level component of the HCE test.
Q. How do I comment on this rule?
A. The Department encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. Comments must be submitted by 11:59 pm 60 days from the Federal Register publication in order to be considered.
Q. When will these changes take effect?
A. The NPRM is only a proposal. Any changes would not take effect until after publication of a Final Rule.