On August 30, 2023, the Department of Labor (DOL) released a Notice of Proposed Rulemaking that would amend the Fair Labors Standard Act to extend mandatory overtime pay to certain salaried workers. A similar rule proposed by the Obama administration to raise the overtime salary threshold to $47,000 was blocked by courts in 2016 following separate legal challenges from business groups and nearly two dozen state officials.
In early April, the White House Office of Management and Budget completed its review of DOL’s final version of the overtime rule. This is the final step in the rulemaking process before a final rule is released. While the proposed rule would update exemption thresholds for overtime eligibility under the Fair Labor Standards Act to $55,000 per year, it’s possible the threshold could be as high as $60,209. The threshold will be based on the most recent Bureau of Labor Statistics salary data, which has been updated since the proposal was released last year.
Main Provisions
- The current overtime salary threshold would be raised from $684 a week or $35,568 per year to $1,059 per week, or $55,000 per year, though it could be as high as $60,000. This so-called “white collar” exemption includes executive, administrative, professional, and outside sales professionals.
- The salary threshold would be automatically updated every three years based on current earnings data.
- The earnings threshold for the highly compensated employee (HCE) exemption would be increased from $107,432 to $143,988.
National Club Association Outlook
The proposed rule is currently under review by the White House and is likely to be finalized by the DOL in April with an effective date sometime in June or July.
The proposed rule from the DOL does not consider any geographic differences, such as the cost of living.
Under the proposed rule, there will be no changes to how bonuses are counted towards the minimum-salary level requirement. Under current rules, only 10 percent of bonuses and commissions can count toward the minimum threshold.
There are limited options to comply with the proposed rule. One way would be to give employees whose salary is right below the threshold a raise to reestablish themselves back into exempt status. Staffing levels can be managed to avoid excessive overtime payments. However, current labor shortages would make it increasingly challenging to recruit part-time workers necessary for filling any scheduling gaps.
The implementation of the proposed rule as written is unclear. The Biden administration has acknowledged that they expect legal challenges against the proposed rule. It’s likely that litigation will hinge on whether the court determines the Department of Labor has the legal authority to update the salary threshold every three years and whether the level is set so high as to render the duties test irrelevant, which previous courts have ruled is a contravention to the Fair Labor Standards Act upon which authority to establish a minimum threshold is based.
Under the proposal, the salary level adjustments would be based on “the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.” The overtime proposal includes a severability provision that would preserve certain portions of the rule if one piece is invalidated in a court.