U.S. Department of Labor Issues Proposed Rule Substantially Changing Overtime Exemptions

On August 30, 2023, the U.S. Department of Labor (DOL) issued a proposed rule that will substantially alter the requirements for “white collar” exemptions under the federal Fair Labor Standards Act (FLSA). The proposed rule deals primarily with the Executive, Administrative and Professional (EAP) exemptions as well as the exemption for Highly-Compensated Employees (HCEs).  

The proposed rule will be open for public comment for 60 days (until October 29, 2023).   

In the DOL’s press release on August 30, 2023, the DOL highlighted the following changes to the current FLSA regulations:

• Increase the EAP minimum salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year), which the DOL characterizes as the 35^th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (exempt and non-exempt employees).
• Increase the total annual compensation requirement for HCEs from $107,432 per year to $143,988 per year, which the DOL characterizes at the 85^th percentile of full-time salaried employees nationally.
• Enhance overtime protections for workers in U.S. territories. Per the DOL, the minimum salary requirements for EAP workers in U.S. territories have not changed since 2004. 
• Automatically update earnings thresholds every three years so they keep pace with changes in worker salaries.

The DOL estimates that in the first year of implementation of the proposed rule, 3.6 million additional employees will be eligible for overtime compensation.

In addition, the DOL’s summary and analysis of the proposed rule explains the following:

• The existing “duties test” will remain in place for EAP employees.
• For employees designated as computer professionals, the compensation requirement may be met by compensating employees at a rate not less than $27.63/hour.
• 3 million small entities will be impacted by the proposed rule, defined as small government jurisdictions, small businesses and small nonprofits.
• The total direct employer costs to small entities in the first year of implementation will range from $294.6 million to $356 million.
• The industries with the highest anticipated costs include professional and technical services, health care services and retail trade.
• Food services and drinking establishments are expected to experience the largest increases in payroll costs.
• Small entities and larger employers will have the same compliance, recordkeeping and reporting requirements.

With the relatively short comment period, employers should plan and budget for the implementation of these new regulations. Our labor and employment team is available to assist employers with analyzing the DOL’s proposed rule and implementation strategies.