Spring Release of New Overtime Rule Likely

Back in July, the U.S. Department of Labor (DOL) issued a proposed new Fair Labor Standards Act (FLSA) overtime rule, which would raise the minimum salary necessary for an employee to be exempt from overtime from the current $455 per week ($23,660 on an annual basis) to $970 per week ($50,440 on an annual basis). DOL’s Notice of Proposed Rulemaking left open the possibility that the final rule could include changes to the executive, administrative and professional duties tests, as well. But the real news was the change in the minimum salary requirement. For a discussion of the proposed new overtime rule, see here.

Last Tuesday – March 15, 2016 – DOL announced that its work on the final rule is complete and that it has submitted it, as required by law, to the federal Office of Management and Budget (OMB) for final review. It is now likely that the final rule will be published in May. Read on to learn when the rule will likely become effective.

Here are the steps. One, DOL submits the proposed rule to OMB for review. That step has just taken place. Two, OMB conducts its review. That can take as long as 90 days, but it usually takes 60 or less. Third, DOL publishes the final rule. And fourth, the rule becomes effective on a date set by DOL in the final rule. For employers, it is that effective date that is, of course, the most important.

By this schedule, we can anticipate publication of the final rule between April 15 and May 15. How much time then would DOL give between the publication date and the effective date? The last time the FLSA overtime regulations were updated, in 2004, DOL allowed a 90-day period between the date of publication and the effective date. This time, the length may depend on whether the final rule does more than just raise the minimum salary threshold. If the rule changes the executive, administrative or professional duties tests that positions must meet to be exempt from overtime, DOL may recognize that employers will likely need more than 30 or 60 days to make adjustments to their FLSA classifications. (I have discussed these requirements in detail in previous blog posts. Read about the salary basis test here, the executive duties test here, the administrative duties test here and here, and the professional duties test here and here.)

The final rule could, therefore, be effective as early as mid-July if it is released on April 15 and DOL allows a 90-period before it became effective. It could also be effective in mid-June if DOL allows only a 60-day implementation period.

Expect Congressional Republicans to try to stop the rule. Indeed, one bill seeking to nullify the proposed rule (and send DOL back to the drawing board) has already been introduced (see here). But don’t expect the oppostion to present more than a bump in the road. President Obama will veto any attempt to nullify or reverse the rule and opponents are unlikely to muster the votes to override a veto.

Bottom Line: Local government employers should already be working on identifying employees who will lose their exemption from overtime if the final rule, as expected, requires a minimum salary in the $50,000 range. As they prepare their budgets for the start of the 2017 fiscal year on July 1, 2016, moreover, they should factor in the possibility that their overtime costs will go up before summer’s end. The change looks imminent.