A new rule, proposed by the U.S. Department of Labor's Wage and Hour Division (DOL) on August 30, 2023 (the Proposed Rule), will expand the group of workers who are entitled to overtime. If implemented, the Proposed Rule will undoubtedly force some employers to make a difficult choice: reclassify employees as non-exempt and assume the expense of overtime pay or increase employees' salaries to maintain their exempt status.
What Is the Proposed Rule?
The Proposed Rule revises regulations in the Fair Labor Standards Act (FLSA) that determine whether employees are entitled to overtime pay for work exceeding 40 hours per week. Not only does the Proposed Rule increase the salary thresholds for executive, administrative, or professional (EAP) employees and for the highly compensated employee (HCE) exemption, but it also includes a mechanism to automatically increase these salary thresholds based on future wage data.
Specifically, the Proposed Rule will increase the salary threshold for EAP employees to guarantee overtime pay for workers who are paid less than $1,059 per week (equivalent to $55,068 per year). This increase may seem like déjà vu, as the DOL increased the salary threshold to $684 per week (equivalent to $35,568 per year) just a few years ago in 2020. Prior to the increase in 2020, the DOL had not increased the salary threshold since 2004, when it made the threshold $455 per week. Similarly, the Proposed Rule also increases the salary threshold for the HCE exemption. The current HCE salary threshold implemented in 2020 is $107,432, which was a slight increase from $100,000 in place since 2004. The HCE threshold will jump up to $143,988 if the Proposed Rule is implemented. The DOL estimates the revised regulations as contemplated in the Proposed Rule will expand overtime entitlement to as many as 3.6 million workers under the FLSA.
The DOL wants to increase the salary thresholds on a more frequent basis—indeed, the Proposed Rule shall automatically increase the salary thresholds every three years going forward based on current U.S. wage data.
What Is the Timeline?
The potential new regulations could begin to affect employers as early as the beginning of 2024. The 60-day public comment period on the Proposed Rule began on September 8, 2023. After the public comment period, the DOL is expected to issue a Final Rule with the effective date of the new regulations. And, as is typically the case, some agency guidance will likely follow. In light of this, employers should begin preparing for an anticipated Final Rule by auditing their current workforce salaries and exemption statuses now, as they may need to explore changes to the employees' wages to maintain the status quo. However, it is important to remember that simply paying an employee a salary, as opposed to an hourly wage, does not by itself mean the employee is properly classified as exempt from overtime pay. Employees must meet both the salary threshold and the duties test to qualify for an exemption from the overtime requirements under the FLSA. Employers also need to be mindful of state or local exemption standards that may be stricter than—or at least different from—the requirements under the FLSA.
We will continue to monitor the DOL's Proposed Rule and any other wage and hour updates. Employers who have questions regarding overtime, properly classifying, or reclassifying, employees or any other wage and hour issues should contact the authors of this article or any lawyer in Venable's Labor and Employment Group.
 United States Department of Labor Wage and Hour Division, Proposed Rule "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees," Federal Register, Sept. 8, 2023, available at https://www.federalregister.gov/documents/2023/09/08/2023-19032/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and