In September 2019, the United States Department of Labor (DOL) published a final rule, raising the salary threshold for certain overtime-exempt employees. That final rule took effect on January 1, 2020. Now, the DOL is considering a new overtime rule — and the proposal is expected to hit this coming fall.
The DOL initially planned to issue this new proposal in April 2022. But they delayed it and are now targeting October 2022 as the release date.
Background on the new overtime proposal
In December 2021, the White House and the DOL confirmed their intention to propose new overtime exemption rules under the Fair Labor Standards Act (FLSA). This did not come as a surprise to many who were following this issue.
During the Obama administration (when President Biden was Vice President), the DOL created a final rule with a much higher threshold for salaried overtime-exempt employees. That (2016) rule raised the minimum salary level from $455 per week to $913 per week. However, a federal judge struck it down.
Later, during the Trump administration, the DOL issued a different final rule — raising the weekly salary minimum from $455 to $684, effective January 1, 2020. That threshold is currently in effect.
However, in the summer of 2021, DOL Secretary of Labor Marty Walsh told a congressional panel that the FLSA salary threshold is “definitely” too low. Hence, the consideration of a new overtime proposal.
What the new overtime proposal may include
Because the new proposal is still under wraps, there aren’t many facts to go by. Below is a summary of what we’ve gathered thus far.
The new proposal is titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.”
The DOL is assessing the regulations at 29 CFR 541
This is part of the regulation “which implements the exemption of bona fide executive, administrative, and professional employees from the Fair Labor Standards Act’s minimum wage and overtime requirements.”
The new proposal has a title
The new proposal is titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” It will come in the form of a Notice of Proposed Rulemaking (NPRM).
The proposed minimum salary amount has not been released
Some industry experts predict that it will be a significant increase from the current $684 per week ($35,568 per year).
“There’s certainly pressure to bring the amount to as high as the $47,476 annualized amount that was enjoined by a court in 2016, but many advocates are seeking even higher levels, from $62,000 to over $80,000 per year.”
This statement comes from attorney Robert Boonin, quoted in an article published by the Society for Human Resource Management (SHRM).
Potential for automatic increases to the threshold
The DOL is considering an automatic annual or periodic increase to the salary threshold. The goal is to tie the threshold increase to the consumer price index or a different economic marker. This way, the amount will go up without the DOL having to make formal adjustments.
The FLSA’s job duties test might be a factor
This isn’t anything new. In recent years, the DOL considered modifying the FLSA’s duties test but ultimately chose not to.
Some observers believe the DOL may go all-in this time
The speculation is that the agency may adjust federal overtime rules to more closely resemble California’s overtime exemption standards. Moreover, some speculate that the DOL may tighten the administrative exemption.
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Some say they won’t do more than reevaluate minimum wage
Many experts believe the DOL will only introduce a new minimum salary level, and no other changes will be made (but this is only a guess).
The public will have at least 30 days to comment on the new proposal. After that, the DOL will review the comments and then are likely to create a final rule. The new rule would likely take effect no earlier than 60 days after it is published in the Federal Register.
The new proposed rule may face challenges
If implemented, the final rule may be subject to legal challenges. Observers say the likelihood of lawsuits may depend on the amount of the new minimum salary.
At this point, the best thing to do is to gain an understanding of what might come and monitor the situation for new developments.
What the new overtime proposal could mean for employers
With the new proposal still unreleased, it would be premature for employers to start making changes to their pay policies. At this point, the best thing to do is to gain an understanding of what might come and monitor the situation for new developments.
Attorney Jim Plunkett tells SHRM, “While employers should be monitoring these potential changes, the regulatory process is still in the early stages … At this time, stakeholders do not even know what changes the DOL will propose, much less finalize.”
Moreover, while many salaried-exempt employees might be looking forward to a pay hike, not everyone is on board with a new overtime rule.
“Many in the business community believe that current hiring and retention issues, supply chain disruptions, and inflationary pressures are all reasons why the DOL should not proceed with a rulemaking,” Plunkett tells SHRM.
There’s also the possibility of the proposal being delayed once more. According to XpertHR, “The DOL may postpone the [proposal] date even further, as it often misses its own rulemaking targets.”
Comparing the current rule to potential changes
The chart below compares the FLSA’s current overtime exemption standards with what we know thus far about the new overtime proposal.
Comparing the current DOL rule to potential changes
|Current FLSA overtime exemption rules||Potential changes for the new proposal|
|Took effect January 1, 2020||Effective date is not known. If a new final rule does occur, observers say it could take effect in the later half of 2023 or early 2024.|
|Minimum salary threshold for exempt executive, administrative, and professional employees (also called “white-collar” employees) = $684 per week ($35,568 per year)||The minimum salary threshold could be increased to $47,476 per year, or even as high as $62,000 to over $80,000 per year|
|Minimum annual pay level for highly compensated employees = $107,432 per year||Whether the minimum pay level for highly compensated employees will change is unknown. Note: The 2016 final rule that was struck down raised the salary threshold for highly compensated employees to $134,004 (from $100,000)|
|Employers can include up to 10% of nondiscretionary bonuses, commissions, and incentive payments in the minimum salary level.||Whether bonuses, commissions, and incentive payments will be permitted is unknown. Note: The 2016 final rule that was struck down allowed employers to count up to 10% of nondiscretionary bonuses, commissions, and incentives toward the minimum salary level; provided those payments were made quarterly or more frequently.|
|Updates to the special salary levels for U.S. territories and motion picture industry employees.||Whether the special salary levels will change is unknown. Note: The 2016 final rule that was struck down updated the special salary level for American Samoa and motion picture industry employees.|
|Job duties test; no changes.||Whether the job duties test will change is not known. Note: The 2016 final rule that was struck down did not include changes to the job duties test.|
What you, as an employer, can expect
If there’s a new overtime final rule, at a minimum, employers can expect the following:
- An increase to the standard minimum salary level will apply to exempt executive, administrative, and professional employees who are subject to the FLSA’s salary basis test. For example, unless things change, it will not apply to outside sales employees — because they are subject to only the job duties test.
- Those subject to the salary basis test will need to receive no less than the new minimum salary in order to remain exempt from overtime. If paid less than the new minimum salary, then they are nonexempt and eligible for overtime.
- Employers in states with their own overtime exemption laws will need to compare the new FLSA rules with their state’s requirements to ensure proper application.
Keep in mind that if an NPRM is released, the public — including employers and business groups — will have an opportunity to communicate with the DOL during the commenting period.
For now, employers should stay abreast of the regulatory process. Unless the DOL switches course, you can anticipate a new overtime proposal in October 2022.