The U.S. Department of Labor (DOL) has projected that it will issue the proposed overtime rule in May 2023. Employers should be mindful that the proposed overtime rule has been delayed multiple times leading up to now, but the DOL’s latest projection is May 2023. Despite the delays in its issuance, employers should plan for an increase in the exempt salary threshold under the proposed new rule.
By way of background, under the federal Fair Labor Standards Act (FLSA), most employees in the United States must be paid at least the federal minimum wage for all hours worked and overtime pay of one and one-half times their regular rate of pay for all hours worked beyond 40 in a workweek, unless the employees are exempt from the minimum wage and overtime requirements. Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for those employed as bona fide executive, administrative and professional employees. These exemptions are often called the “white-collar” or “EAP” exemptions. To qualify for the exemption, employees must receive pay on a “salary basis” of not less than $684 per week (or $35,568 annualized) and meet certain duties tests for the specific exemption. The current salary threshold took effect on Jan. 1, 2020.
In terms of timing, once the proposed overtime rule is issued (currently projected in May 2023), the public will have the opportunity to comment on the proposed rule before the DOL issues a final rule.
Despite the uncertainties, employers can start planning and preparing for some anticipated changes. In particular, employers may consider the following:
- Salary. Employers should consider reviewing employee compensation and planning for any increase and its impact on the organization. With any salary increase, employers may need to decide whether to raise affected employees’ salaries to the new salary level to remain exempt or whether to convert affected employees from exempt to non-exempt status. As an aside, it is important to keep in mind that some jurisdictions may have different requirements than the FLSA, meaning some states or local laws may actually have higher salary thresholds for exempt status.
- Job Duties. While planning for any salary threshold increase, this may be a good time to audit the job duties of exempt employees to determine what job duties they are actually performing. Are exempt employees performing the necessary job duties to meet the duties test for the specific exemption at hand? Job titles do not determine exempt status. Employers should consider whether to update job descriptions to accurately reflect the actual duties of the job. It is also important to keep in mind that some jurisdictions may have different requirements than the FLSA, meaning some states or local laws may have different duties tests, such as in California.