Overtime Threshold: DOL May Make Changes to Wage Level Soon
In recent comments to the House Education and Labor Committee, Secretary of Labor Marty Walsh said that the U.S. Department of Labor (DOL) is currently reviewing the salary threshold for eligible workers to qualify for overtime.
Find out what employers need to know about this possible change and when it could take place.
What Did the DOL Say About Increasing the Overtime Threshold?
In a piece published by Bloomberg Law, reporter Ben Penn wrote that Labor Secretary Marty Walsh said the department is reviewing the current salary threshold for overtime and may update the level based on its findings. Walsh said that the current level is “definitely” too low.
A change to the overtime threshold would mark the second time in as many years that the level has been adjusted. In the past two decades, the overtime threshold has become an especially contentious issue between Republicans and Democrats.
In 2016, the Obama administration sought to raise the threshold to approximately $47,500 and included a provision to automatically increase the salary limit every three years. But, this rule was blocked by a federal judge before it took effect. Then, in 2019, the Trump administration raised the level to its current rate of $35,568/year or $684/week, which took effect in 2020. This rule did not include a provision to automatically raise the threshold.
It appears the Biden administration may want to return to the approach nearly taken in 2016. Bloomberg Law reports that during the same committee hearing, Walsh indicated that the DOL thinks the rule should be reviewed—and possibly updated—regularly.
What is the Overtime Threshold?
The overtime threshold is a salary level that indicates which employees are eligible to receive overtime pay when they work more than 40 hours in a single week. This rate is calculated as one-and-a-half times their hourly pay beyond a standard 40-hour workweek.
In general, employees who make less than the annual or weekly threshold are considered non-exempt, which means they automatically qualify to receive overtime pay.
What is the Difference Between Exempt and Non-Exempt Employees?
The Fair Labor Standards Act (FLSA) protects non-exempt employees and requires employers by law to pay non-exempt employees overtime for every hour worked over 40 hours. These laws assure fair workplace standards and require employers to post overtime and minimum wage standards in high-traffic, visible areas in the workplace.
On the other hand, exempt employees do not qualify to receive overtime pay. Certain job duties qualify individuals for exempt status, such as executive, administrative, professional, computer, and outside sales roles.
Workers who receive annual compensation of $107,432 are considered Highly Compensated Employees and are also classified as exempt if they regularly perform at least one of the duties of an exempt executive, administrative, or professional employee. To learn more about these exemptions, review the following resource from the DOL.
What is the Current Overtime Threshold?
Currently, the overtime income threshold stands at $35,568/year or $684/week, which means that people who earn less than $35,568/year or $684/week automatically qualify for overtime. On a federal level, there is no maximum limit to overtime unless an individual is younger than 16 years old.
Meanwhile, because exempt employees are not covered by the FLSA, they aren’t eligible for overtime pay. Employees also must not fall under any of the other exemptions set forth by the DOL.
What Should Employers Do About This Overtime Threshold Update?
The DOL is simply reviewing the rule, which means there’s not much that employers can do until it’s officially changed. With that said, if and when the threshold is updated, many employers may need to rework budgets to account for new required overtime wages.
For example, if an organization employs 10 people who make $40,000 annually but the threshold is raised to $45,000, these employees may need to be compensated with overtime wages if they work more than 40 hours in a workweek. In the meantime, employers should stay on top of the latest DOL updates in case the agency decides to adjust the threshold.
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