Department of Labor proposes expanded overtime rule

Many more workers would be eligible for overtime under a proposed rule released by the Department of Labor.

According to the DOL, the proposed rule would guarantee overtime pay for most salaried workers earning less than $1,059 per week, about $55,000 per year. The rule would extend overtime to approximately 3.6 million more workers.

Under the rule, the DOL proposed raising the annual salary-level threshold under the Fair Labor Standards Act (FLSA) from $35,568 to $55,068 for white-collar exemptions to overtime requirements. The rule also proposed raising the annual salary-level threshold for the highly compensated employee exemption from $107,432 to $143,988.

In addition, the DOL proposed automatic hikes to the overtime threshold every three years.

“For over 80 years, a cornerstone of workers’ rights in this country is the right to a 40-hour workweek, the promise that you get to go home after 40 hours or you get higher pay for each extra hour that you spend laboring away from your loved ones,” said Acting Secretary Julie Su. “I’ve heard from workers again and again about working long hours, for no extra pay, all while earning low salaries that don’t come anywhere close to compensating them for their sacrifices. Today, the Biden-Harris administration is proposing a rule that would help restore workers’ economic security by giving millions more salaried workers the right to overtime protections if they earn less than $55,000 a year.”

The DOL said that the proposed rule would do the following:

• Restore and extend overtime protections to low-paid salaried workers. The DOL said that because of outdated rules, lower-paid salaried workers aren’t getting paid time-and-a-half for hours worked over 40 in a week. The proposed salary level would help ensure that more of these low-paid salaried workers receive overtime protections traditionally provided by the department’s rules.
• ‘Better identify’ workers who are exempt and not exempt from overtime. The DOL said that the rule will “better identify” which employees are executive, administrative or professional employees who should be exempt from overtime. In doing so, the proposed rule is intended to better ensure that those who are not exempt will receive additional compensation when working more than 40 hours a week.
• Prevent future erosion of overtime protections and ensure greater predictability. The rule proposes automatically updating the salary threshold every three years to reflect current earnings data.
• Restore overtime protections for U.S. territories. From 2004 until 2019, the department’s regulations ensured that the overtime salary threshold also applied to U.S. territories where the federal minimum wage was in effect. The proposed rule would go back to that practice and ensure that workers in U.S. territories subject to the federal minimum wage have the same overtime protections as other U.S. workers.

The proposed rule is open for public comment until October 30, 2023.

Possible implications

If the rule goes into effect, it is likely to have a substantial effect on employers of all sizes.

Employers might need to consider whether to shift some exempt employees to nonexempt and begin paying them overtime or raise the salaries for some employees to get them above the new salary level.

Paying higher salaries and/or more overtime has the potential to significantly increase costs. Employers would also need to do regular reviews of their worker classifications. The fact that the proposal is pending makes it a good time for employers to consider the possibilities.

Experts say that if this rule doesn’t go into effect or is challenged in court, the DOL might consider employing the formerly used “duties test,” under which the classification of a worker as exempt verses nonexempt depends on their job duties.