The United States’ Department of Labor (DOL) just announced a final rule updating the Fair Labor Standards Act (FLSA) with regard to the Overtime Salary Threshold. You can read the official news release here.
To summarize, effective January 1, 2020, all employees earning less than $35,568 per year will be entitled to overtime regardless of whether or not they are salaried employees. As the regulations currently exist, all employees earning under roughly $23,700 are entitled to overtime (the “Salary Threshold”), period. Therefore, as of January 1, 2020, if an employer has a salaried employee earning less than $35,568 per year, the employer will have to begin tracking his or her hours and paying the employee overtime for all hours worked over 40 hours in a given week. The calculation of the overtime rate will require your close attention but is a topic for a separate discussion.
A second threshold under the FLSA has also been affected by this new rule. Currently employees earning between $23,700 and $100,000 regardless of salary vs. hourly designation MIGHT be entitled to overtime unless they pass certain “duties” tests. This duties test band will increase to between $35,568 and $107,432 (“Duties Test Threshold”). The duties tests are highly fact specific and employers should analyze employee eligibility for overtime with trained legal professionals the greatest level of peace of mind.
As a practical matter, this new rule might be delayed or overturned in the courts. For those that paid attention to this topic in 2016, the DOL was on the cusp of imposing a higher Salary Threshold and Duties Test Threshold as of January 1, 2017 ($47,476 and $147,414, respectively). However, at the tail end of 2016, the Federal 5th Circuit (Texas) rules that the Obama administration’s DOL rule was, essentially, unlawful because it overrode Congressional intent in the passage of the FLSA, originally. The DOL did not appeal the ruling because the Trump administration had come to power and simply chose not to appeal.
Because this administration new rule is separate from the previous rule, the 5th Circuit’s ruling theoretically does not apply to this new rule. However, there is nothing different about the Trump administration’s DOL new rule other than it is imposing lower thresholds. It will be very interesting to see whether an employer will sue in the 5th circuit to overturn, and if so, whether the 5th Circuit follows its own past analysis and ruling (stare decisis), whether the court invalidate this rule, and if so, whether the DOL will seek to appeal the rule and whether the Trump administration’s Department of Justice will support or oppose the DOL’s new rule.
So, while a “final rule” has, in fact, been passed, there is still plenty of uncertainty on the horizon.
This article does not constitute legal nor tax advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.
Attorney Joe Camilli practices at Neider & Boucher, S.C. in the firm’s business team. He has a master’s degree in Applied Economics from Marquette University and studied healthcare law at Hamline University School of Law, acquiring his Juris Doctorate in 2012, two years after the passage of the ACA. If you have any questions regarding this article, please contact Joe Camilli at Neider & Boucher, S.C. at 608-661-4500.