PUBLICATIONS

Executive Summary: Under a new proposed rule from the U.S. Department of Labor (DOL), released on August 30, 2023, more than 3.4 million workers would be newly eligible for overtime pay unless employers pay a much higher salary threshold. Currently, workers who are paid a salary of at least $35,568 annually and work in a “bona fide executive, administrative, or professional capacity”—often called “white collar” or “EAP” exceptions—are not covered by the federal Fair Labor Standards Act (FLSA) requirements for employees to receive overtime at a rate of one-and-one-half their regular rate of pay for time worked beyond 40 hours in a week. If adopted, the new proposal—which would be updated every three years—would raise the salary component to over $55,000 annually, while the highly compensated employee threshold would also be raised from the current threshold of $107,432 to a higher threshold of $143,988.

Proposed Rule: The proposed amendments to the DOL’s overtime regulations would increase the salary basis test from $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually). This new salary represents the 35th percentile of weekly earnings of full-time salaried workers in the Southern U.S., which is currently the lowest-wage U.S. Census Region. Similarly, the “highly compensated” exemption under the FLSA would be increased from $107,432 to $143,988 annually, which is tied to the 85th percentile of salaried workers nationally. In addition to raising the salary threshold at the time the final rule goes into effect, the proposed rule would automatically update that amount every three years based on the same earnings data available at the time.

What Happens Now? It is important to note that the DOL’s proposed rule is still subject to the notice and comment period for the 60-day period following publication of the proposal. This means that the current proposal could still change between now and when a final rule actually goes into effect. In fact, the DOL has indicated that the current proposed amounts will likely increase by the time a final rule is implemented (estimates are as high as $60,000 per year for white collar exemptions), as the amounts included in the published proposal are based on data from 2022.

Even once the final rule is published, that is likely not the end of the journey for this proposed change. In 2016, the DOL, under the Obama administration, proposed a similar rule to almost double the salary threshold for white collar exemptions from $455 per week to $913 per week. That rule was challenged shortly after its publication, and a federal judge in Texas enjoined the rule from going into effect. The judge held that the drastic increase in salary level proposed by the DOL resulted in overtime status depending predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties. With this proposal, the DOL is again attempting to nearly double the salary threshold, thus making a legal challenge to the legitimacy of any final rule almost certain.