DOL Proposes Significant Update to Salary Requirement for FLSA Overtime Exemptions

In a long-anticipated move, the U.S. Department of Labor announced a proposed rule to update the salary requirement for exemptions from overtime pay to approximately $55,000, a significant bump from the current $35,568 salary minimum. For employers, this means that any employee not meeting the new salary requirement will be entitled to receive overtime pay of time and a half their regular hourly rate for all hours worked over 40 in a work week. In its Aug. 30 announcement, the DOL estimated the change would result in an additional 3.6 million currently salaried workers receiving overtime pay.

Under the Fair Labor Standards Act (FLSA), workers who currently are paid on a salary basis of at least $684 a week, or $35,568 a year, and meet the duties test for the FLSA’s so-called “white collar” exemptions, are not required to be paid overtime by their employers. The proposed rule would update the weekly salary requirement to $1,059, or $55,068 annually. The proposed rule also includes a provision to automatically update the salary every three years. The DOL is also proposing updating the salary requirement for the highly compensated individual exemption from $107,432 per year to $143,988 per year. 

If the proposed rule goes into effect, employers seeking to maintain their exempt employees will be required to either increase salaries to at least the proposed minimum or convert current exempt employees to non-exempt hourly workers and accept the higher costs of paying overtime wages for all work hours over 40.

The proposed rule is already expected to result in legal challenges from the business community. During the Obama administration, the DOL sought to raise the salary requirement to $47,476 from its then level of $455 per week, or $23,600 annually. A federal court in Texas blocked the increase, finding that the increase was so high as to make irrelevant the duties tests for exemptions under the FLSA. The current $35,568 a year minimum later took effect on Jan. 1, 2020.

Upon publication in the Federal Register, the notice of proposed rulemaking will be open for public comment for 60 days. The department will consider all comments received before publishing a final rule. 

Please contact Mark Fijman or any member of Phelps’ Labor and Employment team for compliance advice or guidance.