On Aug. 30, 2023, the Department of Labor (DOL) announced a Notice of Proposed Rulemaking (NPRM) about employer obligations related to overtime pay. The NPRM would put significant new burdens on a variety of industries, financial institutions and other businesses to offer overtime pay (time-and-a-half) to a much larger portion of their employees. The proposal is similar to a 2016 rule promulgated by the DOL under the Obama administration that was ultimately held up by a federal court in Texas.
Overview of Proposed Overtime Rule
DOL is specifically proposing to amend Section 13(a)(1) of the Fair Labor Standards Act (FLSA) for executive, administrative and professional (EAP) workers by:
- Increasing the current threshold to qualify for exemptions from $684 a week or $35,568 per year to $1,059 per week or $55,000 per year;
- Raising the highly compensated employee (HCE) total annual compensation to $143,988; and
- Restoring the applicability of the overtime requirements to workers in the U.S. territories subject to the federal minimum wage. Currently, under the HCE test, employees who receive at least $107,432 in total annual compensation are exempt from the FLSA’s overtime requirements if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative or professional employee identified in the standard tests for exemption. The HCE test applies only to employees whose primary duty includes performing office or non-manual work.
This means that employees who make under these amounts in accordance with the duties test will not be exempt from requirements for overtime pay, sparking a variety of new compliance and human resources concerns for employees in this salary range for companies, which DOL estimates is 3.6 million new people. As noted in the proposal, to satisfy the EAP exemption, employees must meet certain tests regarding their job duties and generally must be paid on a salary basis at least the amount specified in the regulations. Some employees, such as doctors, lawyers, teachers and outside sales employees, are not subject to salary tests. Others, such as academic administrative personnel and computer employees, are subject to special, contingent earning thresholds.
Notably, the NPRM also includes an automatic updating mechanism that would happen every three years at the 35th percentile of income, which employers in the past have highlighted triggers constant and recurring new compliance burdens.
Upon publication in the Federal Register, the NPRM will be open for public comment for 60 days. Learn more about the proposed rule and instructions for submitting comments.
When the DOL attempted similar changes to employees’ eligibility for overtime pay in 2016, businesses and financial institutions raised several concerns. These included concerns about the complex requirements associated with the changes, particularly a three-year recurring update of qualifications levels. Several stakeholders also cautioned that the changes could result in a host of unintended negative consequences.
For example, if employees change to a non-exempt status, scheduling for time off and other purposes could be less flexible. Additionally, if employers have to pay overtime for networking events, conferences and other business-related opportunities that fall outside of regular hours, the resulting budgetary impacts could limit some growth opportunities.
Companies also cautioned that looking at a fixed percentile of the entire country to determine a salary threshold would not account for well-documented geographic differences in salary. This component may be exacerbated by the increased work-from-home environment and flexible work hours that businesses adopted following the COVID-19 pandemic.
Lawmakers were vocal when the Obama-era rules were proposed, hosting hearings and taking other actions. As referenced above, the rules were also the subject of litigation, with the Eastern District of Texas halting the rulemaking in 2017. As such, we expect this new proposal to spark a significant debate and robust participation in the comment process.
The proposal comes amid rumors that the DOL is close to finalizing its proposed rule on joint employer status under the FLSA and its final rule on independent contractor status under the same statute, setting up a busy fall season for the agency. Brownstein’s team is well-equipped to help with all facets of advocacy related to the overtime rule and others that may follow. For assistance drafting comments or for more information about any of the rulemakings, please contact a member of the Brownstein team.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING DOL RULES REGARDING OVERTIME. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.