Dive Brief:
- The U.S. Department of Labor’s final rule updating the standard by which some workers may be excluded from the overtime pay requirements of the Fair Labor Standards Act cleared review by the White House Thursday.
- The details have not been made public but DOL last year proposed to increase the minimum annual salary threshold that determines overtime pay eligibility from $35,568 to $55,068. If adopted as proposed, the rule also would provide for automatic future updates to the threshold every three years. The exemption applies to workers employed as bona fide executive, administrative, professional and outside sales employees, as well as some computer employees.
- The final rule now must be published in the Federal Register before it can take effect. In December, DOL projected that the rule would be published in April.
Dive Insight:
One of the most anticipated regulatory updates in employment law appears to be right on schedule. Employers could see the final rule appear as early as the end of next week, if not sooner, said Brett Coburn, partner at Alston & Bird.
In public comments on DOL’s initial proposal, the Society for Human Resource Management asked DOL to consider delaying the final rule’s effective date to 2025, which SHRM said would allow employers to “tie any classification or pay-related changes into budgeting efforts and operational changes for the new year.”
Until the final rule is published, however, it is uncertain what changes the department will make to its initial proposal. That includes the effective date of the rule as well as the salary threshold itself. While the proposed rule set the annual minimum at $55,068, the agency indicated in the proposal that this could change.
“The Department relied on [U.S. Bureau of Labor Statistics] data for calendar year 2022 to develop this NPRM, including to determine the proposed salary level,” DOL wrote. “In the final rule, the Department will use the most recent data available, which will change the dollar figures.”
Once published, the final rule is almost certainly headed for a court challenge. “But just because lawsuits are brought quickly does not mean much in terms of when a court will rule,” said Coburn, who compared the current situation to that faced by the Obama administration in 2016, which similarly issued an updated overtime rule months ahead of a presidential election. “It feels like a repeat of what we saw in 2016.”
At the time of the proposed rule’s publication, DOL estimated that some 3.6 million workers would receive overtime eligibility as a result. Aside from the aforementioned provisions, the rule also would increase the total annual compensation requirement for certain highly compensated employees to $143,988 per year. DOL did not propose changes to the “duties test” for determining overtime eligibility.
Coburn said employers will need to prepare for the final rule in part by determining the number of employees whose compensation falls between current and newly proposed thresholds. Employers may decide to raise the salary of these employees to preserve their exempt status or convert them to non-exempt status. There are a number of considerations to make no matter how an employer moves forward, however, including cultural aspects.
“I have so many clients say [that they] have so many people who want to be exempt and paid a salary,” Coburn said. But “there’s not a good answer” to the question of how employers should manage such employees, he continued. “The law is what it is. If they’re non-exempt, they have to track their time. They can’t be checking emails at night and doing things that exempt employees do.”
