On August 30th, the Department of Labor announced a Notice of Proposed Rulemaking to revise the regulations that govern when certain employees are entitled to overtime. While it is currently tentative whether and when these proposals will become effective, if effective, these proposals would significantly increase the number of employees required to receive overtime pay.
The Fair Labor Standards Act (“FLSA”) requires employers pay employees a minimum wage and at least 1.5 times the employee’s regular rate of pay for all hours that an employee works in excess of 40 hours in any given week. There are certain exceptions when an employer is not required to pay an employee overtime.
The FLSA exempts employees who qualify for the Executive, Administrative, and Professional exemption, also known as the “white collar exemption,” which foregoes the minimum wage and overtime requirements for those “employed in a bona fide executive, administrative, or professional capacity.” To qualify for the white collar exemption, (1) an employee must be paid a fixed salary that is not subject to reductions; (2) the amount of the salary must meet or exceed a specified amount; and (3) the employee’s duties must primarily consist of executive, administrative, or professional duties.
The FLSA also exempts highly compensated employees (“HCE”) from overtime payment requirements. To qualify for the HCE, and employee must (1) be paid a specified amount and (2) regularly perform an exempt responsibility identified in the white collar exemption.
Currently, the base salary to satisfy the white collar exemption is $684 per week, the equivalent to an annual salary of $35,568, and the total compensation for highly compensated employees is $107,432 per annum. On August 30, 2023, the Department of Labor (“DOL”) proposed:
- Increasing the white collar exemption from $684 per week (or $35,568 per year) to $1,059 per week (or $55,068 per year);
- Increasing the HCE exemption from $107,432 per year to $143,988 per year;
- Restoring overtime protections for U.S. territories; and
- Automatically updating the earning threshold every three years to stay on par with industry changes in employee salaries.
It is evident that this rule would entitle significantly more employees to receipt of overtime for hours worked beyond 40 within a workweek. Now is a great time for employers to examine exempt/non-exempt status and to evaluate if/how these changes would impact your business.
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