A new Biden administration proposal could qualify 3.6 million workers for overtime pay.
The Department of Labor’s new proposed rule for white collar exemptions was released last week and some experts are calling it the biggest news for employers since the pandemic.
Right now, overtime pay applies to hourly workers, who are considered non-exempt under payroll, and log an excess of 40 hours per week. For any non-hourly workers, otherwise known as exempt employees, you are out of luck unless you earn less than $36,568 per year. But that could all change with this new proposal, which bumps the salary threshold to $55,068 a year.
If it doesn’t get blocked, employers will have to weigh bumping employees to the new threshold or paying overtime. For now, the Department of Labor will accept public comments on the proposal for 60 days and then publish its final ruling.
If companies can’t afford overtime, employers need to find other efficiencies or potentially overhaul aspects of their business, said Kara Govro, chief HR legal expert at HR company Mineral.
“For employers that do have currently exempt employees doing a fair bit of overtime, they need to be mindful of what happens to those hours,” said Govro. “Do they still get worked and they have to pay time and a half? Do they redistribute the work?”
And employees might not be happy with how things change.
“If you do have a lot of exempt employees close to the new threshold, you might just give them raises to move them up into that threshold,” said Govro. “Then you need to consider wage compression and how much you’re paying other people who are slightly above the line and whether you’re going to give them raises. If you don’t, it seems pretty unfair. It can lead to pay equity issues and morale issues.”
But it’s ultimately up to the employer to see what makes the most sense for the company’s bottom line, which may require special audits. It could involve employees more closely tracking their own hours, too.
“One piece of advice we give employers in advance to a change like this is to start tracking the time of your exempt employees who you think may need to be reclassified as non exempt,” said Govro. “When they’re exempt, you may not be tracking their time at all. They don’t really know necessarily if those employees are working 42 hours a week or 60 hours a week, which would be a huge deal.”
Phoebe Cachuela, associate general counsel at Magnit, agrees: “If you find out they’re working 60 hours a week, it makes more sense to bump up their salary.”
The Biden administration’s proposed rule would also automatically increase the salary threshold every three years to keep up with inflation, although it didn’t say by how much.
“That’s not the case now,” said Cachuela. “Right now, it’s whenever the Department of Labor gets around to it. So the three years [would] help the country stay in step with inflation and cost of living adjustments.”
Waiting too long between changing the threshold is also what leads to increases so high that are likely to be turned down in court.
“We have to get on some type of track so we don’t have the Department of Labor always trying to catch up,” said Emily Dickens, chief of staff and head of public affairs at Society for Human Resource Management. “In the catch up mode, they’re asking for larger increases because it’s a longer period of time between the changes.”
While experts say it’s important to gear up for the new proposed rule now, there’s still a chance that it falls through — as it did in 2016. The Obama administration proposed raising the salary threshold from $23,660 to $47,000, but it was ultimately blocked in federal court just over a week before it was scheduled to take effect. The Trump administration brought the new threshold to $35,600 in 2019.
Even if a final rule is issued in favor of the proposal, it could face the same challenges that blocked the 2016 increase.
“2024 will be interesting in terms of who the next administration will be,” said Cachuela. “If Biden is re-elected, his Department of Labor will push forward to fight any legal challenges that could happen, but if it goes the other way, it’s likely the proposal will go the same way as the Trump administration.”
Either way, though, experts say it’s worth auditing the company to see what the best way to respond is if you haven’t already.
“A number of employers have been waiting on this for a while,” said Dickens. “There’s somebody in the organization, probably in HR, who has a file and has been taking notes.”