Now, while it is still early, is the time for employers to consider and prepare for potential increased overtime costs. As it stands today, the salary threshold for workers who can be exempt from overtime pay requirements is $35,568. That means, if all other exemption requirements are satisfied, workers with a salary of at least that amount are “exempt” and can lawfully work more than 40 hours a week without additional pay for overtime hours.
However, on August 30, 2023, the Department of Labor (“DOL”) announced a proposed rule that would increase the salary threshold from $35,568 to $55,068, a more than 50% increase. If/when, the proposed rule is adopted, some 3.6 million workers across the United States who are exempt today, will be exempt no longer.
Under the Fair Labor Standards Act (“FLSA”), employees who have a salary under the threshold amount must be paid 1.5 times their hourly rate for every hour worked over 40 hours per week. Under current regulations, employees must have a salary of at least $35,568 and certain job duties to be exempt from the overtime requirement. The FLSA recognizes exemptions for executives, administrative employees, learned and creative professionals, computer employees, and outside sales employees. Additionally, workers that perform at least one duty of an executive, administrative, or professional employee and are paid a salary of $107,432 are exempt from overtime pay requirements.
The DOL’s proposed rule would increase the threshold to include employees making less than $1,059 per week—the equivalent of $55,068 per year—instead of the current threshold of $684 per week. Further, the proposed rule would include a mechanism to automatically update the threshold every three years. This provision aims to increase the threshold at a rate consistent with wage trends and inflation. The proposed rule would also restore overtime protections for workers in U.S. territories. The overtime threshold was in place in U.S. territories from 2004 to 2019, so the proposed rule would return to that practice and require employers in those territories to observe overtime requirements as well as federal minimum wage requirements.
The proposed rule is not final and will be held open for comments through October 29, 2023. However, employers should take steps now to review current overtime policies and procedures and identify employees who may be covered by the proposed increased salary threshold.
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