The U.S. Department of Labor is proposing changes under the Fair Labor Standards Act that would make over 3 million more salaried workers eligible to qualify for overtime pay, with potential impacts for employers.
Employer Action Code: Monitor
The Department of Labor (DOL) has issued proposed rules under the Fair Labor Standards Act (FLSA) that the DOL estimates would extend overtime pay entitlements to approximately 3.65 million more workers if the rules are finalized in their current form. The FLSA requires that covered employees receive overtime pay for all hours worked over 40 in a workweek at a rate that's at least 150% of their regular rate of pay, unless they are employed in an executive, administrative or professional (EAP) capacity. One of the DOL's criteria for determining if employees meet this EAP exemption to the overtime pay mandate is whether their salaries exceed a certain threshold. The proposed rules would increase the salary threshold substantially and make other notable changes.
Following are key elements of the proposed rules:
- The minimum standard salary required for an employee to qualify for exemption from the FLSA overtime pay mandate would increase — from the current $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). Note that the increase would not affect workers in states and municipalities that have already established local thresholds higher than the proposed federal level (e.g., California and New York City).
- The standard salary threshold would apply to Puerto Rico, Guam, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands, and the special salary thresholds for American Samoa and the motion picture industry would increase.
- The total annual compensation requirement for highly compensated employees (HCEs) would increase — from the current $107,432 per year to $143,998 per year — in order to qualify for the special overtime exemption for certain HCEs.
- These salary thresholds would be updated automatically every three years.
Although employers may want to consider the potential impact of these proposed rules now, they should proceed with caution in terms of actual implementation because any final rules may later be challenged in court. The DOL set the current FLSA salary threshold in 2019, after some of its more ambitious 2016 proposed changes (somewhat similar to the current proposals) were ruled invalid.
The DOL published the proposed rules in the Federal Register on September 8, 2023, and is accepting public comment through November 7, 2023. Notwithstanding any significant challenges, employers may see the final rule in effect by the start of 2024.
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