DOL Proposal Dramatically Increases Salary Level Necessary for Overtime Exemption

Workers who are salaried, who make more than a certain amount of money per year and work in a "bona fide executive, administrative, or professional capacity" are not covered by requirements for employers to pay employees at time-and-a-half for any time they work beyond 40 hours in a week.  Employees must meet all three of these factors for the exemption to apply.  On August 30, 2023, the Department of Labor (DOL) announced a new proposed rule to update these regulations.  Specifically, the DOL's proposed rule would:

• Increase the regulations' standard salary level from $684.00 per week ($35,568.00 per year) to $1,059.00 per week ($55,068.00 per year).

• Automatically update earnings thresholds every three years so they keep pace with changes in worker salaries, changes which would keep up with the cost of living and allow employers to know when salary updates would happen and how they would be calculated.

• Increase the total annual compensation required for highly-compensated employees from $107,432.00 per year to $143,988.00 per year.  

The proposed rule starts a regulatory process to change the rule, beginning with a 60-day public comment period.  It is estimated that the rule, if finalized, would render approximately 3.6 million workers currently classified as overtime exempt eligible for overtime, but the rule will cost employers $1.2 billion to implement.  

There will almost certainly be legal challenges to the rule.  In November 2016, a federal judge blocked the Obama Administration from raising the overtime threshold to $47,476.00 a year, after certain states and businesses challenged it.  The Trump Administration then raised the level to its current rate, the first increase since 2004.  

The final rule, if implemented, will actually raise the salary level even higher because DOL will use the most recent data available.  For example, DOL states that if the rule is finalized in the 4th Quarter of 2023, it "projects that the salary threshold could be $1,140.00 per week or $59,285.00 for a full-year worker."  

Employers may sometime in the future have to consider either raising salaries to certain exempt persons or move them to an hourly rate or a fixed-pay-for-fluctuating hours arrangement.  There will be a big adjustment for employees and employers in terms of timekeeping practices as well. 

This article is part of our November 2023 Newsletter. 

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