DOL Poised To Expand Overtime Protections
The United States Department of Labor (“DOL”) recently released a proposed rule that—should it become final—would significantly increase the minimum weekly salary that employers are required to pay most exempt employees under the Fair Labor Standards Act (“FLSA”).
The proposed rule seeks to increase the weekly salary-level threshold for most exempt employees from $684 to $1,059. Should the proposed rule become law, employers would be required to re-evaluate their employment classifications and decide whether to increase the salaries of certain exempt employees to meet this new salary threshold or reclassify these employees as non-exempt and pay them an hourly wage that would be subject to minimum wage and overtime requirements.
Background: FLSA Exemptions
Under the FLSA, the default rule is that employees must be paid overtime pay for all hours actually worked over forty (40) hours per week, at a rate of at least 1.5 times their regular rate of pay. However, certain categories of employees may be treated as “exempt” from overtime pay requirements if they satisfy the FLSA tests. For most of these categories (with certain exceptions, such as for teachers), this includes being paid a set weekly salary regardless of the number of hours an employee works.
The most common of the FLSA exemptions are the so-called “white collar” exemptions: Administrative, Executive, and Professional. Currently, to qualify for a “white collar” exemption under the FLSA, an employee must satisfy all of the following tests:
• Be paid on a salary basis;
• Be paid a weekly salary of at least $684; and
• Primarily perform bona fide executive, administrative, or professional duties as defined by the FLSA regulations.
The current minimum salary level of $684 per week has been in place since 2020. That increase, instituted under the Trump administration, was the first since 2004, though employers may recall that a more significant increase was announced under the Obama-era DOL but was enjoined by a federal court in Texas before it took effect.
The Proposed Rule
The aspect of the DOL’s proposed rule that has garnered the most attention (and the most concern among employers) is the proposed increase to the weekly salary threshold from $684 to $1,059. On an annual basis, this equates to an increase from $35,568 to $55,068.
This change would have an immediate impact on U.S. employees and their employers. The DOL estimates that approximately 3.6 million workers who are currently classified as exempt employees earn weekly salaries less than $1,059. Employers would need to decide whether to increase those employees’ salaries to at least the new weekly minimum or reclassify them as non-exempt, making them overtime-eligible.
Other changes that the proposed rule would bring about include the following:
- The weekly salary threshold for exempt status would be updated automatically every three years, based on official income data.
- The salary threshold would apply to employees working in U.S. territories.
- The minimum annual salary required for another FLSA exemption – the so-called “highly compensated employee” exemption – would be increased from $107,432 to $143,900.
Status Of The New Rule
The “notice and comment” period, during which time any interested party had the right to provide input to the DOL about the proposed rule changes, ended on November 7, 2023. At this point, the DOL is required to review all comments and consider whether any revisions should be made to the proposed rule. The DOL will then issue a final rule that will likely go into effect shortly thereafter.
The DOL will likely try to move the rulemaking process along quickly, so that the rule becomes effective in 2024, before any potential change in the presidential administration. However, opponents may use similar legislative and/or judicial tactics to those used to oppose the Obama-era proposed regulations in an attempt to delay or block the rule from taking effect.
Recommendations For Employers
Although it remains unclear whether and when the proposed rule may take effect, employers should consider reviewing their pay practices and employee classifications to determine how this change may affect their workforce.
In particular, employers should determine whether any current employees who are classified as exempt under one of the white-collar exemptions are paid less than $1,059 per week (or if they have any employees covered by the highly compensated employee exemption who make less than $143,900 per year). To the extent that this is the case, employers should consider how they would respond to a proposed salary level increase. For each position impacted by the new rule, employers might consider (1) treating the position as non-exempt and therefore overtime-eligible; (2) raising the position’s salary above the new threshold; or (3) eliminating the position.
School employers should be aware that most teaching faculty and some administrative employees are not subject to the salary-basis requirement, and those positions will not be affected by any of the proposed changes. However, any employer who has a question about the proper classification of any employee is encouraged to consult with counsel.
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SHPC will continue to monitor developments with the DOL’s proposed rule and provide updates as they occur. In the meantime, please contact one of our experienced employment attorneys with any questions regarding overtime exemptions or employee classifications.