Know who is eligible for overtime pay.
On Aug. 30, 2023, the United States Department of Labor (DOL) announced a proposed revision to the Fair Labor Standards Act. The change is being labeled as a revision to the federal overtime rule, which would affect who is eligible for overtime pay — time-and-a-half for hours worked over 40 in a given work week.
Federal overtime threshold would increase to $1,059 per week
The proposed rule would guarantee overtime pay for most salaried workers earning less than $1,059 per week, which works out to $55,068 per year. Currently, the overtime threshold is $684 per week, or $35,568 per year.
If the change goes into effect, employers with exempt employees earning less than $55,068 per year will need to either:
- Reclassify those employees as nonexempt (and therefore eligible for overtime pay), or
- Raise their pay above the new threshold
Note that the federal overtime rules represent a floor rather than a ceiling. Certain states and municipalities have overtime rules that are more generous to employees.
Other proposed changes
The DOL says the proposed rule would also:
- Increase the total annual compensation requirement for highly compensated employees (HCEs). The new compensation requirement would equal the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally. This comes out to $143,988 per year based on current data. The existing threshold is $107,432.
- Automatically update the salary threshold and HCE threshold every three years to reflect current earnings data
- Apply the overtime salary threshold to U.S. territories where the federal minimum wage applies
The proposed rule would not affect the current job duties tests for overtime pay, which must be satisfied before an employee can be declared exempt.
The DOL’s comment period closed on Nov. 7. The DOL will now decide whether to issue the rule as originally proposed, issue a revised version, or drop the proposal altogether. This process could take up to a few months. If the rule change goes through, it will almost certainly be challenged in court.
What you should do to prepare
The proposed revision is not yet in effect, and it may never take effect. Still, the best course of action is to start preparing now.
Start by looking at which of your employees are classified as exempt. Then, review their total annual pay.
If any exempt employees make less than $1,059 per week/$55,068 per year, you will need to decide whether to pay them more or reclassify them as nonexempt if the proposed rule becomes final.
The law firm Fisher Phillips recommends that employers start tracking the hours of these employees now to better “understand the potential impact of converting to non-exempt status and to make an informed decision when the time comes.” You should also start considering the potential impact on benefits.
Need more information?
The DOL has released a FAQ page about the proposed rule making.
To learn more about how the DOL’s proposed revision could affect your business, contact your benefits broker or legal counsel.
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