Will the amount of overtime compensation that you are required to pay your employees go up soon? It certainly looks like it. That’s because, after announcing its intentions to review overtime compensation last year, the Department of Labor is working on new rules that could be released as early as this month.
Secretary of Labor Marty Walsh told Congress last year that he viewed the salary cutoff for earning overtime by law — less than $35,568 a year — as “definitely” too low, and that his department was reviewing regulation in that area, Bloomberg Law reported at the time.
Currently, the Department of Labor requires that employees covered by the Fair Labor Standards Act must receive overtime pay for working more than 40 hours in a workweek, unless the employee is covered by certain exemptions.
Generally, the rule applies to any salaried worker who does not supervise other workers and makes less than $684 a week, or $35,568 a year. Certain executive, administrative, professional and outside sales employees are exempt from this rule.
These regulations are generally the same for businesses operating in Pennsylvania, New Jersey and Delaware. However, there are additional rules, both from the states and the Department of Labor, for when workweeks and pay amounts fluctuate or are not consistent period to period.
How overtime rules could change
As experts wait for the Labor Department’s announcement, many agree that changes will likely affect both salary levels and job classifications.
Dena Calo, a Philadelphia-based employment lawyer with Saul Ewing Arnstein & Lehr, says that eligible overtime salary limits could be increased from the current $35,568 annual amount to anywhere from $60,000 to $80,000 — although the upper limit is not likely, in her opinion.
“I think that high level would have too much of a negative impact on business,” she said. “My guess is that the department will increase wages incrementally over time or have some automatic increase based on an index.”
The department is also expected to take a harder look at which employees are exempt from this rule in order to make more employees eligible for overtime.
“We’re not sure of the details yet,” said Susie Cirilli, a lawyer with Flaster Greenberg in Center City. “But we’re telling our clients that they should definitely expect these changes to happen sometime soon.”
There will almost certainly be lawsuits in response to rule changes. In 2016, President Barack Obama’s administration attempted to increase the overtime annual wage ceiling to as much as $47,476, but that rule change was contested by business groups and struck down by a federal judge, and the legal battle was dropped by the Trump administration.
However, President Joe Biden has made increasing overtime pay one of his campaign promises, and many experts believe that this administration will make a much harder push to see these new revisions through.
Prepare by reviewing job descriptions and time records
What can employers do now to prepare?
For starters, Cirilli is advising her clients to revisit all their employee job descriptions.
“Go through each position and make sure that they’re completely up to date,” she said. “Determine what the roles and duties are for potentially eligible employees and then evaluate whether or not they truly are exempt or nonexempt” from current rules.
It’s also important to keep good time records so that you can identify those employees who are on the cusp.
“You will need to track the hours some of your employees are putting in,” Calo said. “Workers that are in the $35,000 to $50,000 salary range will be the ones to focus on. If some of those currently exempt employees are working more than 40 hours a week, an employer will likely have to be paying them for overtime. They’re going to want to really understand what the financial implications are.”
Don’t wait for an employee to file a complaint
Both lawyers also recommend getting your house in order now.
“Before worrying about what may or may not happen in the future, we’re telling our clients to ensure that they’re complying right now with current policy,” Calo said. “You need to make sure that your employees are properly classified and that you can say definitively that those employees that are exempt from these rules — be it because of compensation or job description — are truly exempt.”
By doing this, Calo said, “at least you’ll know that you’re in compliance with the rules and can then figure out what to do when the new rules come out.”
If you don’t comply, your business could be subject to significant penalties and other enforcement actions from federal and state governments.
And don’t expect that these agencies will need to find you: Any employee who feels entitled to overtime and doesn’t receive it will do the job for them.
“It’s always an unhappy or disgruntled employee that makes a complaint,” Cirilli said. “In the end, it will always be easier if you’re keeping your employees happy and paying them the correct way.”
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.