On August 30, 2023 the United States Department of Labor announced a notice of proposed rulemaking that would extend overtime pay to an additional 3.6 million salaried workers. In a nutshell, the proposed rule guarantees overtime pay for previously exempt salaried workers who earn less than $1,059 per week, or about $55,000 per year. This proposed change revises section 13(a)(1) of the Fair Labor Standards Act (FLSA), which exempts minimum wage and overtime pay requirements for certain executive, administrative and professional employees. It also provides for an automatic updating mechanism that streamlines the process to update and accurately reflect current earnings data.
Details of the Proposed Rule
According to the Department of Labor, the proposed rule would do the following:
- Increase the Executive, Administrative and Professional (EAP) exemption minimum salary level from $684 per week or $35,568 per year to $1,059 per week or $55,068 per year. The duties test currently in place will not change.
- Increase the annual compensation amount for Highly Compensated Employees (HCEs) from $107,432 to $143,988 per year.
- Increase protection for workers in the U.S. Territories.
- Overtime protections for the U.S. Territories restored. Workers in the territories enjoyed the same protections between 2004-2019, and that practice will be reestablished with this rule.
- Automatic update the salary threshold every three years to accurately reflect current earnings data.
How Does the FLSA Classify Employees as Exempt or Non-Exempt?
Under the FLSA’s “white-collar” executive, administrative and professional exemption, employees who are paid less than the threshold salary amount set in the statute, or do not meet the duties test, must be paid 1 1/12 times their regular hourly rate for hours worked in excess of 40 hours in a workweek. Under the duties test the employee’s job responsibilities must primarily include executive, administrative, or professional duties. The table below reflects the changes to the salary threshold in the last three years.
|Prior to 2020||2020-Present||Under New Rule|
According to the DOL, under the new rule, approximately 300,000 more manufacturing workers would be entitled to overtime pay. It reports a similar number of retail workers would be eligible, along with 180,000 hospitality and leisure workers, and 600,000 in the health care and social services sector. In all, it estimates that the expanded overtime protections would increase the number of eligible workers by approximately 3.6 million.
Key Takeaways for Employers
- If the proposed rule takes effect, employers may have a number of salaried employees who fall below the new salary threshold. Employers will need to decide whether to convert those employees to hourly/ nonexempt and pay them overtime, or increase their salaries to maintain their nonexempt status.
- The proposed rule is expected to have a substantial impact on small to medium size businesses as well as non-profits who may find themselves with significant increases in labor costs.
- Larger business will also have the expense of reviewing and auditing the current workforce to determine which employees fall into the gap.
- The proposed rule does not change the duties test for exemptions, but employers should be aware that courts will examine not only the salary level of the employee, but also whether the duties performed are primarily executive, administrative or professional duties.
- Employers should also remain vigilant as to changes in rules on the state level in addition to the federal mandates.
Upon publication in the Federal Register, the notice of proposed rulemaking will be open for public comment for 60 days. The department will consider all comments received before publishing a final rule.
The attorneys at Wood, Smith, Henning & Berman are available to answer any questions or concerns your business may have moving forward regarding these new requirements which are likely to be finalized by the Department of Labor in the coming weeks. Please do not hesitate to reach out to a member of our team for further assistance.