• A currently proposed rulemaking would raise the threshold for overtime exemptions from $35,568 to $55,068 (annually).

• The rule would also raise the maximum salary for those classified as “highly compensated employees” from $107,432 to $143,988.

• While a similar proposal from the Obama Administration was shot down, legal experts say companies should prepare for possible changes.

A proposed rulemaking by the U.S. Department of Labor (DOL) was published in The Federal Register last week, aiming to raise the current salary threshold for overtime exemptions from $35,568 to $55,068 annually. Should the change be enacted, the move will mark a 55% increase in the annual earnings threshold, extending guaranteed overtime pay to around 3.6 million salaried workers. As a result, all employees earning less than $1,059 per week would be entitled to overtime pay, regardless of job title and duties.

DOL’s proposal follows through on an announcement made in in 2022, in which officials said they intended to update regulations, redefining which employees are eligible for overtime compensation and which are exempt.

According to the Southeast law firm Burr & Forman, DOL’s proposed rule raises the salary threshold to the 35th percentile of average weekly earnings of full-time salaried workers in the southern U.S. Census Region, which currently marks the lowest for wages.

“For over 80 years, a cornerstone of workers’ rights in this country is the right to a 40-hour work week, the promise that you get to go home after 40 hours or you get higher pay for each extra hour that you spend laboring away from your loved ones,” said DOL acting secretary Julie Su. “I’ve heard from workers again and again about working long hours, for no extra pay, all while earning low salaries that don’t come anywhere close to compensating them for their sacrifices.”

The proposed rule would also change exemptions by raising the maximum salary for those classified as “highly compensated employees” from $107,432 to $143,988—the latter of which marks the 85th percentile of full-time salaried workers nationally.

“By better identifying which employees are executive, administrative or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week,” DOL officials suggest.

Federal overtime provisions are part of the Fair Labor Standards Act (FLSA), requiring that employees covered by the Act receive overtime pay for hours worked over 40 in a workweek “at a rate not less than time and one-half their regular rates of pay.” According to the Act, there is no limit on the number of hours employees aged 16 and older may work in any given work week.

According to DOL officials, a salary level test has been part of the regulations process since 1938 and “has been long recognized that the best single test of the employer’s good faith in attributing to the employee’s services is the amount they pay for those services.” In prior rulemakings, officials expressed a commitment to update the standard salary level and Highly Compensated Employees (HCE) total compensation levels more frequently, which they suggest promotes greater stability, while avoiding disruptive salary level increases that “can result from lengthy gaps between updates.”

The recent announcement for a proposed rulemaking follows months of “extensive outreach to employers, workers, unions and other stakeholders, which included the department holding 27 listening sessions with more than 2,000 participants to inform the proposed rule,” DOL officials said. Some salaried employees work alongside those earning hourly wages, often contributing more than 40 hours a week, officials said, as “outdated and out-of-sync rules” prevent those same salaried workers from earning overtime pay. The proposed salary level would help ensure that salaried workers receive overtime protections traditionally provided by the department’s rules, they suggested.

“For too long, many low-paid salaried workers have been denied overtime pay, even though they often work long hours and perform much of the same work as their hourly counterparts,” said DOL principal deputy Wage and Hour Division administrator Jessica Looman. “This proposed rule would ensure that more workers receive extra pay when they work long hours.”

How Legal Experts Say You Should Prepare

According to experts at Burr & Forman, extending overtime pay to more workers is a key agenda for DOL and the Biden Administration. Legal challenges to the DOL’s proposed rule are expected. A similar proposal from the Obama Administration, seeking to raise the annual salary threshold from $23,660 to $47,476, was blocked by a federal court in Texas. Nonetheless, with

a final rule months away, “employers should review their current pay practices to prepare for possible changes,” the firm advises.

Key suggestions include:

• Review current position classifications and pay scales to determine how many currently exempt employees earn between the $35,568 and $55,068 thresholds to estimate the potential cost of increasing their pay.
• For exempt positions earning below the $55,068 annual threshold, track and analyze the number of hours worked per week to establish the potential cost of converting them to non-exempt, hourly workers.
• Be aware that many employees view salaries as a more prestigious form of pay than hourly wages and may view a change to hourly as a demotion. Formerly salaried employees may also resent having to clock in and out to track hours.
• Ensure company policies are up to date, especially those related to proper timekeeping, approval of overtime, use of company equipment or personal devices to conduct business during non-work hours, meal and rest breaks, and remote work.

“Public input is essential as we consider the needs of today’s workforce and industry demands, and we encourage continued stakeholder input during the public comment period,” Looman said.

A 60-day comment period closes at 11:59 p.m. Eastern Time, Nov. 7, 2023. Comments can be filed electronically through the Federal eRulemaking Portal, or mailed to: Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, D.C. 20210.

Comments should be identified by Regulatory Information Number (RIN) 1235–AA39.