DEPARTMENT OF LABOR PUBLISHES PROPOSED OVERTIME RULE

On September 8, 2023, the Department of Labor (“DOL”) published a proposed rule that would increase salary thresholds under the Fair Labor Standards Act’s (“FLSA”) overtime pay and minimum wage requirements. Under the FLSA’s “white collar” exemption, an employee is exempt from overtime pay and minimum wage requirements if that employee: (1) performs certain exempt duties (e.g., executive, administrative, and/or professional duties); (2) is paid on a salary basis; and (3) has a salary that exceeds a certain minimum threshold, which is currently set at $684 per week and equates to $35,568 per year. Under the DOL’s proposed rule, the minimum salary threshold for these “white collar” exemptions would increase to $1,059 per week, which equates to $55,068 per year—over a 50% increase.

In addition, the proposed rule would raise the annual compensation level for highly compensated employees (also exempt from overtime pay and minimum wage requirements) from $107,432 per year currently to $143,988 per year. Finally, the proposed rule provides for automatic updates to these salary thresholds every three years.

Subject to a 60-day comment period and highly anticipated legal challenges, a final rule incorporating the above increases in salary thresholds would entitle 3.4 million currently exempt employees to overtime pay (1.5x their hourly rate) for all hours worked over 40 hours in a workweek. It is unclear whether and when the proposed rule will go into effect, however employers should begin preparing for potential changes now.

Employers can strategize and prepare for the proposed changes by:

• Identifying exempt employees within the affected zone. Employers should audit their workforce to determine which employees may be affected by the proposed rule—i.e., those who make more than $684 per week ($35,568 per year) but less than $1,059 per week ($55,068 per year).
• Beginning to track working hours for employees within the affected zone. It may be helpful to first begin tracking hours for these employees, even though they remain exempt unless and until a new rule goes into effect. This will provide helpful information throughout the decision-making process about the financial and operational impact of any changes. For example, if converted to hourly would the employee regularly be entitled to overtime pay? If so, what is the estimated financial cost? Or what is the operational impact on having that employee work fewer hours?
• Developing a plan for employees within the affected zone. Employers will be tasked with deciding whether to give affected employees a pay increase to at least the new salary threshold; convert the employee to non-exempt status; or continue to pay the employee on a salary basis but require timekeeping to ensure overtime pay is provided as needed. Employers should consider the operational impact, financial cost, and potential effect on morale given that many employees prefer exempt status, among other things.
• Reviewing current job duties. While the proposed rule does not change the duties test, improper job duties that do not fit within an exception, or are outdated, can undermine an exemption. The proposed rule affords employers with an excellent opportunity to audit its workforce and re-classify exempt employees whose duties may not fit within an exemption.

Employers are invited to submit comments regarding the proposed rule. The comment period is open until November 7, 2023. The proposed regulation can be found here.

This post was drafted by Faith Kowalski, a law clerk at Baylor Evnen Wolfe & Tannehill, LLP. If you have questions regarding the DOL’s proposed overtime rule, please call Torrey J. Gerdes, Susan M. Foster, Melanie Whittamore-Mantzios, or Christopher M. Schmidt at 402-475-1075.