In early March 2024, the U.S. Department of Labor’s (DOL) proposed overtime rule, announced in August 2023, entered its last stage of review. Publication of the final rule is expected soon. The rule would amend the requirements that employees in certain white-collar occupations must satisfy to qualify for an overtime exemption under the Fair Labor Standards Act (FLSA).

The FLSA white-collar exemptions apply to individuals in executive, administrative, and some outside sales personnel and computer-related occupations. Some highly compensated employees (HCEs) may also qualify for a FLSA white-collar exemption.

To qualify for most white-collar exemptions, employees must meet the specified salary threshold, among other criteria. The DOL is proposing to increase the standard salary level from:

• $684 to $1,059 per week ($55,068 per year); and
• $107,432 to $143,988 per year for highly compensated employees (HCEs).  

The rule would also enable the DOL to update the salary levels automatically every three years without having to rely on the rulemaking process.

Highlights

• The salary level for the executive, administrative and professional exemptions will increase to $1,059 per week ($55,068 per year).
• The compensation level for HCEs will increase to $143,988 per year.
• The rule would enable the DOL to update compensation thresholds automatically every three years.
• The proposed rule does not affect the duties test for the white-collar FLSA exemptions.

Important Dates

Aug. 30, 2023
The DOL proposed higher salary levels for white-collar exemptions from overtime.

March 1, 2024
The DOL’s proposed overtime rule entered its final stage of review.

Background on the Overtime Rule

The FLSA requires employers to pay employees overtime pay at a rate of 1.5 times their regular rate of pay for all hours worked over 40 in a workweek unless the employees qualify for an exemption under the FLSA. The FLSA provides several exemptions from the overtime pay requirements, the most common of which are the “white-collar” exemptions. These  exemptions primarily apply to executive, administrative and professional employees (EAPs) but also apply to some individuals in outside sales and computer-related occupations and certain HCEs.  

To qualify for most white-collar exemptions, an employee must satisfy the following tests:

• The salary basis test requires that the employee is paid a predetermined and fixed salary that does not fluctuate based on the quality or quantity of work;
• The salary level test requires that the employee meets a minimum specified amount to qualify for the exemption. The current salary threshold is $684 per week ($35,568 per year). The current compensation threshold for HCEs is $107,432 per year ($35,568 of which must be earned on a salary basis). However, outside sales personnel and certain other professions, including doctors, lawyers and teachers, are not subject to the salary level test; and
• The duties test requires that an employee’s actual work responsibilities match the description the FLSA assigns to the exemption. HCEs are subject to a less restrictive duties test.

The proposed rule would increase the salary threshold from $684 to $1,059 per week ($55,068 per year) and raise the compensation threshold for HCEs from $107,432 to $143,988 per year ($55,068 of which must be earned on a salary basis). These amounts may be different in the final rule, so employers should carefully review the final rule once published. The proposed rule also enables the DOL to automatically increase these thresholds every three years without having to rely on the rulemaking process.

Preparing for the New Overtime Rule

Continue reading this Compliance Advisor which summarizes the proposed changes and describes steps employers may take in anticipation of the final overtime rule, which include:

• Identify Affected Employees
• Determine Treatment of Affected Employees
• Track and Analyze Hours Worked
• Review and Update Employer Policies  
• Develop Internal Communications
• Prepare Employee and Manager Trainings
• Audit Exempt Employees’ Job Duties
• Review Applicable State and Local Overtime Laws
• Monitor for Updates and Legal Challenges

Action Steps for Employers

Employers can expect the final rule to be published soon, and the DOL has indicated that the final rule will likely take effect only 60 days after its publication. Therefore, employers should begin to familiarize themselves with the proposed rule and evaluate what actions they may need to take before the effective date. 

Contact us to learn more.