KHVPF Insight

DOL Intends To Expand Workers Eligible For Overtime

DOL Intends To Expand Workers Eligible For Overtime

The federal Department of Labor, through its rule making authority, has published a change in its rules, that, by its own account, would extend overtime eligibility to 3.6 million employees under the Fair Labor Standards Act. The DOL intends to make this change by raising the minimum salary level for an employee to qualify as exempt from overtime requirements. Under current law, workers covered by the FLSA are entitled to overtime pay (one and one-half times regular rate) for hours worked over forty in a workweek unless they fall within one of several exemptions. These exemptions from overtime requirements include those employed in bona fide executive, administrative or professional capacity. To fall within that exemption, the employee must meet both a duties test and a salary basis test. 

Under the current salary basis test, an employee must be paid more than $684 per week ($35,568 annually) and be paid a salary that does not vary based on the amount of work performed. The proposed rules, which the DOL expect to become final in April, would raise the minimum salary level to $1,059 per week, which is $55,068 per year. Thus, salaried employees making less than $55,068 per year will become overtime eligible. The proposed rule would also change another exemption for highly compensated employees by increasing the total annual compensation requirement from $107,432 to $143,988 per year. The proposed rules do not impact the duties test. The proposed rule would also automatically adjust the salary thresholds every three years based on wage data to account for changes in economic conditions. 

The DOL’s authority to make such changes by administrative fiat has been hotly contested in recent years. The DOL during the Obama administration attempted to raise the salary threshold, but a federal district court blocked that rule challenging the increase. More recently, a Texas federal court upheld the DOL’s statutory authority to impose a salary requirement to qualify for the executive, administrative, and professional exemptions from overtime in Mayfield v US Dept of Labor (WD Texas Sept. 20, 2023). As discussed in our summer issue, however, the U.S. Supreme Court has questioned, and in some cases overturned, the authority of federal agencies to make rules on major issues deferred to it by Congress.

The comment period for the new rules recently expired. The next step in the rule making process will be to publish final rules with an anticipated effective date in April. We expect court challenges will then begin. In the interim, however, employers should assess how the proposed change will impact the salary structures in their workplace.  

Eric J. Pelton