Overtime Rule May Affect More Employees By 2020 Than Labor Department Estimated

Payroll on Bloomberg Tax is built to get you to the right answer faster and more efficiently. Get all the payroll intelligence you need with Bloomberg Tax expert analysis, perspectives and...

By Howard Perlman

The Labor Department may have underestimated the degree that the new federal overtime rule's salary thresholds would increase by 2020, and therefore more employees may become nonexempt from overtime requirements than the department expected, a nonprofit association said June 9.

Under the final overtime rule ( RIN 1235-AA11), issued May 18 and effective Dec. 1, the annual salary thresholds for exemption from the Fair Labor Standards Act's overtime requirements are to rise to $47,476 from $23,660 for executive, administrative and professional employees, and to $134,004 from $100,000 for highly compensated employees. The thresholds are to be adjusted every three years, starting Jan. 1, 2020. Adjustments to the standard salary threshold are to set the threshold at the 40th percentile of salaries for full-time salaried workers in the lowest-wage Census region. Adjustments to the threshold for highly compensated employees are to set the threshold at the 90th percentile of salaries for full-time salaried workers in the U.S. as a whole.

The department estimated that effective Jan. 1, 2020, the standard annual salary threshold is to be $51,168 and the annual salary threshold for highly compensated employees is to be $147,524, an information sheet showed. The estimates likely are lower than the thresholds that would be in effect Jan. 1, 2020, because employers may switch numerous salaried employees now exempt from overtime premiums to hourly status in response to the rule, Kerry Chou, senior practice leader at WorldatWork, said June 9 in a news release. The status switching would cause lower salaries to be removed from the sets of salaries used when computing adjustments and consequentially would cause the salaries at applicable percentiles to be higher, Chou said.

The standard annual salary threshold could be as high as $70,966, effective Jan. 1, 2020, which is 38.69 percent higher than the Labor Department's estimate of $51,168, because of employers switching salaried employees to hourly status in response to the rule and with increases to salaries to maintain exempt status not being counted as an offset, WorldatWork said in a chart.

Efforts in Congress to Impede Rule's Implementation

Republicans in Congress concerned with potential effects of the final overtime rule have introduced measures to block or delay its implementation.

One bill, preemptively introduced March 17 in the Senate and House with identical language ( S. 2707 and H.R. 4773) would prevent the final rule from being enforced and would require the Labor Department's subsequent proposed overtime rule to not include automatic adjustments for inflation.

A resolution ( S.J. Res. 34) introduced June 7 in the Senate would, in conjunction with the passage of that language in the House and the Congressional Review Act, also would cause the rule to not be implemented.

President Barack Obama likely would veto these measures. However, under the Congressional Review Act, vetoing the resolution still would delay the rule's implementation for up to 30 congressional session days.

To contact the reporter on this story: Howard Perlman in Washington at hperlman@bna.com. To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com.

Request Payroll