On August 30, the U.S. Department of Labor (DOL) announced that it would put forward a rule to raise the salary threshold under which employees are eligible for overtime pay under federal labor laws. The Fair Labor Standards Act (FLSA) provides exemptions from its overtime requirements for employees with certain duties who make above a certain salary.
The proposed rule, titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” would raise the FLSA threshold for employees who are ineligible for overtime pay from $684 per week (or $35,568 per year) to $1,059 per week (or $55,068 per year). Additionally, the proposed rule would raise the salary threshold for highly compensated employees from $107,432 per year to $143,988 per year. Besides raising the salary threshold, the proposed rule would automatically adjust every three years based on current earnings data. The proposed rule would not make any changes to the “duties test” for determining whether an exemption to overtime applies. According to the DOL, the proposed rule would extend overtime to 3.6 million additional workers.
The August 30 announcement came just before the DOL’s self-imposed deadline for putting forth the proposal. The DOL had said in its spring regulatory agenda that the proposed overtime rule would come in August, which was a delay from the previous time frames. Until now, the Biden administration had stuck with the rate established during the Trump administration, which is currently being challenged in a Texas federal court. The DOL filed a notice in the court on August 30 that clarified that the Trump-era rule remains in effect for now. We can expect that this latest proposed rule will also be subject to challenges in court.
Lawmakers have also sought to raise the threshold through legislation. The Restoring Overtime Pay Act, which remains pending, would increase the ceiling to around $75,000 by 2026, followed by automatic updates.
The proposed rule was published in the Federal Register on September 8, 2023, and the 60-day public comment period will close on November 7, 2023.
Although the proposed rule has not yet gone into effect, employers should reevaluate the compensation structure for their employees with an eye on the new proposed salary threshold for overtime. Steptoe & Johnson’s Labor & Employment Compliance Team can help you with that understanding.