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  • The Department of Labor Proposes to Extend Overtime Pay to Nearly 5 Million Workers

    Last month, the Department of Labor (“DOL”) released a proposal that would more than double the salary threshold that determines which workers are eligible for time-and-a-half pay when working more than 40 hours in a week.

    The proposal would guarantee overtime pay to most salaried workers earning less than an estimated $50,440 next year. The salary threshold guarantees overtime for most salaried workers who fall below it, but it is eroded every year by inflation. Today, the salary threshold remains at $23,660 ($455 per week), which is below the poverty threshold for a family of four, and only 8% of full-time salaried workers fall below it.

    Under the proposed rules, which would take effect in 2016, overtime pay and the minimum wage would be extended to nearly 5 million workers within the first year of its implementation, the threshold under which most salaried workers are guaranteed overtime would be raised to equal the 40th percentile of weekly earnings for full-time salaried workers, future erosion of overtime would be prevented and there would be greater predictability with automatic updates of the salary threshold based on inflation or wage growth over time. There will also be greater clarity for workers and employers to determine whether they should be receiving overtime pay.

    In 2013, employers paid workers approximately $6.7 trillion in wages. The DOL estimates that, if the overtime proposal is accepted as is, almost $1.5 billion will be transferred from employers to the pockets of their workers in the first year it is implemented. Additionally, approximately $593 million will be administrative costs, a number that will drop sharply after the first year.

    Although the rules will not be finalized for months, many companies are already seeking ways to comply with the law and keep labor costs under control. For example, some firms are installing software that alerts managers when workers are at risk of running up overtime. Some others are evaluating which staffers should receive salaries and which should switch to hourly pay. The public can submit comments on the rule until September 4, 2015.

    Please note that this advisory is a general overview of the new proposal and is not intended as a comprehensive explanation of all aspects of the plan or as formal legal advice. If you have any questions regarding the proposed rules, please feel free to contact Cynthia A. Augello at caugello@cullenanddykman.com or call her at (516) 357-3753.

    A special thank you to Lauren Dwarika, a law clerk at Cullen and Dykman LLP, for her assistance with this advisory.