On March 7, 2019, the U.S. Department of Labor issued a proposed rule increasing the minimum salary threshold for overtime-exempt employees to $35,308 from the current level of $23,660. Employers may recall prior proposed rulemaking under the Obama administration that would have raised the minimum salary threshold to $47,476. The Obama-era rule was never implemented due to litigation, but employers should prepare to comply with the new salary minimum salary of $35,308 if they have not done so already.
The increased salary level may require employers to classify currently exempt employees as non-exempt. Employers may need to review and evaluate who may be eligible for overtime based on the new federal rules. Also, employers may want to look into rescheduling their employees so that they do not sustain overtime hours. Employers can take many other actions such as hiring new employees to spread the workload so that each employee has less overtime or no overtime hours at all, cutting costs in other areas in order to afford overtime hours for their employees, or increasing the salaries of employees to surpass the new requirement.
Even employers who currently pay salaried, exempt employees in excess of the proposed minimum of $35,308 should use this proposed rulemaking as an opportunity to reassess compensation and employee benefits companywide. This is especially the case for employers located in states or municipalities where the minimum wage may be increasing or already has increased above the federal hourly rate of $7.25. Coupled with nationally low unemployment, these salary and wage floor increases mean that it is vitally important to offer competitive benefits packages in order to attract and retain workers.
Of course, the rising minimum salary threshold for overtime employees and federal, state, and local minimum wage requirements apply to employers regardless of what benefits they offer. For employers who are forced to increase compensation due to the increased salary threshold for overtime employees, this may mean that employers should seek out more affordable employee benefit options to minimize the total increase in compensation and benefits costs. Relatedly, employers should balance the increased benefit costs that may come with hiring additional staff (to minimize overtime hours worked) compared to the increased number of overtime-eligible employees if the employer chooses to not raise salaries to comply with the rule. There is no one-size-fits-all approach to complying with the proposed minimum salary increase, so employers should work with their benefits advisors, human resources professionals, and legal counsel when needed to determine the best way to proceed.
This article gives a basic overview of recent regulation as in effect on the date of the newsletter. Please be aware that the determination of the requirements and the application of these rules to each employer may differ due to a number of variables. Nothing in this article should be construed as legal advice.