Top Story

Top Story

Show Me the Money: Updated DOL Regulation Increases Overtime Eligibility
By:  Tim Williams

An updated Department of Labor regulation will dramatically increase the number of employees that are eligible for overtime.  Currently, employees are eligible to receive overtime at a rate of 1.5 times the regular hourly rate for all hours worked each week over 40 hours.  However, there are various exceptions to this rule.  The most common is the “white collar” exemption, which exempts employees performing executive, administrative, or professional duties.  Those employees were previously exempt from overtime if they made a threshold salary of $23,660 a year ($455 per week) and had certain job requirements.  This $23,660 yearly salary has remained unchanged for over a decade.  So, as long as the exempt employees made over the threshold amount, employers did not have to pay time and a half. 

Effective December 1, 2016, the $23,660 yearly salary figure will change to a $47,476.  So, employees making less than $47,476 ($913 per week) will qualify for overtime pay if they work more than 40 hours a week regardless of their job title.  Previously exempt managers not entitled to overtime will see a bump in their paychecks if they continue to work 40-plus hours we week.  There were no changes to the duties test, so what employees fall under the “white collar” exemption remains the same.  Additionally, the highly compensated employee exemption will increase from $100,000 to $134,004.  According to the DOL, this will increase the number of employees eligible for overtime by 4.2 million.  The Economic Policy Institute estimates that 12.5 million salaried workers will now become eligible for overtime.  This will increase the percentage of full-time salaried employees that will be eligible for time and a half from 7 percent to 35 percent.  The regulations also establish a mechanism to automatically update the salary and compensation levels every three years beginning on January 1, 2020. 

Whether a significant portion of the newly eligible employees actually sees time and a half is currently being debated. Overtime eligibility may not translate into overtime hours.  As it stands, employers will be faced with three options for those employees that work over 40 hours per week:  (1) raise salaries to make employees exempt from overtime, (2) pay time and a half overtime, (3) cut hours to make sure that employees do not receive overtime, or (4) lower base hourly pay to offset overtime.  If employers chose the latter, the new overtime regulation may actually decrease paychecks for some employees.  Employers could scale back hours, adjust schedules, and divide responsibilities among part-time employees.  The net effect is employees may actually see a smaller check.  

It will take some time before we see the effect of the new regulation, i.e. whether it will force employers to scale back hours, increase in FLSA claims, etc.  At this juncture, employers and exempt employees should review current salaries and analyze the number of hours worked.  From there, employers will be required to determine whether to convert from salaried employees to hourly.  Either way, it looks like employers and employees alike may be turning to their attorneys for guidance. 

Tim Williams is an attorney at Sprouse Shrader Smith PLLC and a director of the Texas Young Lawyers Association.  Tim can be contacted at tim.williams@sprouselaw.com.


Views and opinions expressed in eNews are those of their authors and not necessarily those of the Texas Young Lawyers Association or the State Bar of Texas.

Submit an Article

Interested in writing an article for eNews?


Contact Us

Connect With Us