The DOL Wants to Revise Overtime RulesOct 20, 2023
The new rule would result in higher wages for millions of workers
The Biden administration wants the Department of Labor (DOL) to rewrite the eligibility rules for overtime pay under the Fair Labor Standards Act (FLSA) — and the change would result in higher wages for approximately 3.6M workers.
An update is overdue
On September 8, 2023, the DOL published a Notice of Proposed Rulemaking (NPRM) in the Federal Register that will, if enacted intact, revise the “white collar” overtime exemption rules that apply to executive, administrative, and other professional employees. Under the new rule, workers making less than $55,068 ($1,059 per week) will automatically be entitled to time-and-a-half pay for hours worked over 40 in one week. This is up significantly from the $35,568 floor set during the Trump administration. Biden’s DOL is essentially reviving the Obama administration plan to raise the floor to $47,476, which a federal judge in Texas struck down before taking effect.
Other than restoring and extending overtime protections to low-paid salaried workers, the new rule will, if enacted as is, automatically update every three years to reflect current earnings data. It will also restore minimum wage and overtime protection to United States territories, which were eliminated in 2019.
The proposed rule could significantly impact small employers, nonprofits, and entire industries, such as hospitality, retail, and healthcare. Small and midsized businesses could face a substantial increase in labor costs if they are required to pay higher salaries or reclassify certain employees as eligible for overtime. It has also been noted that the new rule will disproportionately impact employers outside large metropolitan areas.
Preparing for compliance
While the comment period remains open until November 7, 2023 — and the rule could change before it becomes final — employers should still prepare for some version of the proposed rule to become final in the coming months.
Besides reviewing current payroll compliance practices in light of the new rule, employers must understand that this isn’t just about salary thresholds. Just because someone is given a job title, like gas station manager, and has a job description that describes exempt duties, it doesn’t necessarily mean the manager is exempt from the FLSA’s overtime requirements. The employee must also meet certain job duties to qualify as exempt from overtime. In sum, under the FLSA, employers must show that a worker is salaried, makes a certain amount of income, and works in a “bona fide executive, administrative, or professional capacity” to be exempt from hourly overtime requirements.
Employers are encouraged to use this proposed rule as a framework for looking at exemption requirements more broadly. Is it feasible to raise the salaries of certain exempt employees earning less than $55,068 to the threshold? Or should employers convert these employees to non-exempt status? Employers must also evaluate and monitor overtime payments and whether or not to allow non-exempt employees to work and earn overtime. Regardless of the rule’s ultimate form, employers should remember that some states already require higher salary levels to qualify for certain exemptions.
It’s also a good idea to begin developing a communications plan. How do you plan to educate your employees about these new regulations, the decisions being made, and how these new rules and decisions will affect them?
Failure to pay employees properly can lead to state and federal wage-and-hour audits or investigations, payment of back wages, and substantial fines and penalties.
If you have any questions or concerns about this new rule — or are looking for help in evaluating the impact of the rule on your bottom line — don’t hesitate to contact Orr & Reno for assistance.