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The Department of Labor's New Proposed Overtime Requirements and What They Mean for Employers

The FLSA employment law decides which employees qualify or which are exempt for overtime pay. An exempt employee due to their rate of pay and type of work duties do not qualify for overtime pay, whereas non-exempt employees are required to be paid overtime (time and a half) for hours worked over forty in a workweek.

The DOL (Department of Labor) has proposed a new rule to update the level of salaries for white-collar exemptions on overtime pay. On March 7th of this year, they unveiled the new proposal, which is expected to update the salary of the workers entitled to overtime compensation and create a new employment law.

The proposal's new salary level will go up from $455 a week to $679 a week, which will mean an annual salary of $35, 308. If the proposal is accepted into law, it will be the first increase to salary levels since 2004.

When the DOL set the standard salary in 2004, it did so based on data from the U.S. Bureau of Labor Statistics which they collected and used to establish a level that would be roughly equal to earnings at the 20th percentile. The two subpopulations used at the 20th percentile were salaried employees in the South and salaried employees in the retail industry. With the new proposal, the DOL will be preserving the methodology used in 2004 and effectively update the salary levels to reflect the growth of nominal salaries and wages.

Expected Impact of DOL Proposed Overtime Requirements on the Retail Industry

The proposed changes are expected to have a significant impact on retail employers. Many retail employers are afraid that managers will lose their exempt status in favor of hourly pay. If this causes negative morale, it could result in reclassifying managers as nonexempt, which would mean they would be responsible for tracking their meal breaks and time.

Other impacts could affect company policies such as those that apply only to exempt managers and their ability to work from their home or their ability to access their email remotely. Retail employers are also concerned with the impact on issues such as pay compression and geographic differences in pay.

The Fight for the Change

It took four years to expand the overtime pay, and it is expected about 1.2 million workers will win from the change and 2.8 million will lose. The DOL will scale back an Obama-era employment law that would have doubled maximum salaries for a qualified worker to receive overtime.

Workers who earn less than $23,000 a year can earn overtime pay under current employment law, with overtime wages defined as fifty percent extra hourly pay for workers who work more than forty hours a week. The Obama administration attempted to double that threshold in 2014 to include workers who earned up to $47,000 in an attempt to tie future changes to the cost of living. This attempt to double the limit created quite an uproar, and with the legal disputes that erupted, the effort was put on hold.

Trump's labor secretary, Alexander Acosta, is now creating a watered-down version of Obama's idea. They are now lifting the salary limit to $35,000 and scrapping the cost-of-living increases. This lift in salary limits results in about 2.8 million of the 4 million workers who thought they would get overtime benefits will not get them.

The DOL estimates the new rule will transfer approximately four-hundred million from United States employers to their workers each year for the next ten years. The White House Office of Management and Budget is reviewing the new rule and will either deny or accept it within the next two months.

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