By now you have heard that the federal overtime laws affecting common white collar exemptions, including those applicable to executive, administrative, and professional employees, will change significantly. As a result, millions of employees who were previously ineligible for overtime will be eligible when the new regulations take effect on December 1, 2016.
The new overtime law:
- Increases the minimum exemption level for salaried workers from $455/week ($23,660 annually) to $913/week ($47,476 annually);
- Increases the minimum total annual compensation for highly compensated employees from $100,000 to $134,004;
- Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard’s salary level; and
- Establishes a mechanism to automatically update minimum salary and compensation levels every three years.
As a result, employers who currently pay employees a salary between $23,660 and $47,476 will see labor costs increase substantially. Predictably, affected employers will seek creative ways to work around the new law. For example, an employer with a $40,000 salaried employee working 50 hours a week may (1) increase the salary by $7,476 to reach the threshold, (2) limit the employee to 40 hours per week and assign the work to other employees, which may result in hiring more employees, (3) pay time-and-a-half overtime pay, which would amount to $15,000 per year, (4) modify the employee’s pay by adjusting the salary or hourly rate, (5) pay a salary that compensates for more than 40 hours in a week, or (6) adopt the fluctuating workweek method. Critics of the new overtime law complain that it oversteps the authority of the executive branch while it fails to consider the negative effect on employees as employment costs increase. Addressing these issues, U.S. Sens. Lamar Alexander, R-Tenn., and Ron Johnson, R-Wis., recently filed a proposed bill that would nullify the new overtime rules, and further prohibit the Obama administration from issuing similar changes without congressional approval.
The bill, Protecting Workplace Advancement and Opportunity Act, (S. 2707 and H.R. 4773) would:
- Nullify the new overtime rules;
- Require the DOL to first conduct a comprehensive economic analysis on the impact of mandatory overtime expansion to small businesses, nonprofit organizations and public employers;
- Prohibit automatic increases in the salary threshold; and
- Require that any future changes to the duties test be subject to notice and comment.
According to a recent article in the Knoxville News Sentinel, Alexander mocked the new overtime rules as a “time card rule,” arguing it would force even mid-level managers to punch a clock as they come and go from work. Alexander claimed that the new rules would end up hurting employees because employers would reduce work hours and be less likely to allow flexible work schedules.
“Employers are going to say, ‘Don’t come to work early. Don’t stay late… Work your eight hours and go home. I don’t have the money to pay you overtime,'” Alexander said in a speech on the Senate floor.
According to the same article, Johnson argued the rules change would increase costs to businesses, non-profits and others, resulting in negative, unintended consequences for employees.
The bill is sponsored by 43 other senators, all Republicans, including Sen. Bob Corker, R-Tenn.
Currently, the proposed bill does not offer an alternative to the new overtime rules, but only attempts to block their implementation.
More information about the new overtime rules can be found in the Burr Alert, U.S. Department of Labor Issues New Overtime Regulations: What Should You Know?