Omid Nosrati

HR group argues federal exempt overtime threshold should rise

A federal judge recently scuttled plans to raise the salary level that helps determine whether employees are entitled to overtime under the Fair Labor Standards Act. Workers who are subject to the federal FLSA are generally entitled to overtime pay unless they meet a specific exemption from the law.

The salary level is part of a three-part test that determines whether a worker qualifies for an exemption, such as the administrative, executive, learned professional, outside sales, computer employee or creative professional exemption. Using the administrative exemption as an example, the three factors include:

  • The worker is paid on a salary or fee basis at a rate of $455 per week or greater (the salary level).
  • The worker's primary job duty is the performance of non-manual work that directly relates to the management of general business operations or the employer's customers.
  • The worker's primary job duty involves the exercise of independent judgment and discretion in matters of significance.

In 2016, the Obama administration passed a new rule that would have raised that salary level from around $23,660 per year ($455 per week) to $47,476 per year ($913 per week). That rule was struck down by a federal court earlier this year.

The question remains, though: Should the federal salary level be raised? Although the salary level cannot be used by itself to determine whether an employee is entitled to overtime, it is often used by employers as a proxy for the three-part rule.

The Society for Human Resource Management opposed the Obama administration rule, but it does think the salary level should be raised. It urges the Department of Labor to reconsider its calculation and use the same methodology as in 2004, when the agency last raised the salary level.

The U.S. Chamber of Commerce estimated that using that methodology would set the federal salary level at $31,824 ($612 per week). Several state attorneys general, however, support setting the threshold at the level chosen by the Obama administration.

If you work for a California company, you don't have to worry about the federal salary level because you are covered by California law. To be exempt from overtime in California, you have to earn a salary of at least twice the minimum wage, among other factors.

That means that the salary level in California is always tied to changes in the minimum wage. The California minimum wage is scheduled to go up in steps between this year and 2022, which means the exempt salary level will rise, as well.

Do you think the federal salary level should work like California's?

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