The Department of Labor, on August 30, 2023, proposed changes to the so-called “white collar” exemptions to the federal overtime regulations. If adopted and implemented, the proposed changes would result in millions of additional employees becoming eligible for overtime pay.
The proposed changes would substantially increase the threshold amount of money that employees must earn in a year before they can be considered exempt from the overtime requirements under the executive, professional, and administrative exemptions to the overtime rules.
Specifically, the proposed changes would significantly increase the threshold salary requirement from $35,568 to $55,068. Interestingly, the changes do not revise the substantive “duties” tests which also must be satisfied in order for an employee to fall within one or more of the “white collar” (i.e., executive, professional, or administrative) exemptions. The proposed changes would also increase the threshold amount of the “highly compensated” exemption to the overtime rules from $107,432 to $143,988 annually. The DOL’s proposed changes also contemplate automatic increases every three years to the overtime threshold.
The practical and stated purpose of the proposed changes, according to the federal government, is to significantly increase the number of individuals eligible for overtime pay. The proposed changes appear likely to have a disproportionate impact upon employers based outside of major metropolitan areas, as well as upon non-profits and smaller employers.
The proposed changes do not provide an exemption for non-profit organizations or small businesses. As was the case in 2016 when the Department of Labor (under then President Obama) attempted to increase – unsuccessfully – the minimum salary threshold for overtime eligibility, if the proposed changes are implemented, they will likely be subject to court challenges.
The proposed changes will likely result in a cascade of complaints from employer groups. Regardless of whether the proposed changes are implemented, employers should begin preparing now for changes to the overtime regulations. In this regard, employers should consider the following:
- Carefully review the job positions and job descriptions of their current employees to determine whether they are being properly characterized as exempt. This undertaking should be done under the guidance and direction of employment counsel in order to better ensure that the characterizations are being properly made, particularly in light of the significant consequences of mischaracterization. Importantly, the dangers and costs of mischaracterizing employees as exempt – if they are actually non-exempt – are profound regardless of whether the proposed changes to the salary thresholds are increased.
- Analyze which of their employees are currently considered exempt who are earning less than the proposed new salary threshold of $55,068.
- For employees presently earning slightly less than the $55,068 threshold, consider whether it makes sense to increase their salary above the $55,068 threshold so that these individuals would be eligible for exemption from the overtime rules if they satisfy one or more of the substantive “duties” tests.
- In circumstances where previously exempt employees may be considered non-exempt, decide whether to place limits on the number hours that these individuals can work and, if so, the nature and extent of these limitations. The imposition of limitations on hours that individuals can work will not only have a financial consequence to individuals, but will likely have an impact upon employee morale as well.
- If a decision is made to limit the number of hours that a (new) non-exempt employee can work, then a decision also needs to be made regarding whether and to what extent to reassign certain work duties to other employees.
- The availability of overtime pay for employees not previously eligible to receive it should prompt consideration of hiring additional employees to reduce the likelihood that any employee will need to work overtime.
- Several states currently have salary thresholds for overtime that are higher than the current federal salary threshold.
- The extent to which increased overtime obligations may impact the employer’s financial ability to fund other employer benefits.
- The manner in which to communicate to employees that their status has been changed from exempt to nonexempt.
- Exploring insurance coverage for overtime and mischaracterization claims.
Regrettably, the proposed new overtime changes do nothing – at least not yet – to address the significant confusion that the overtime rules currently engender. The proposed changes, if implemented, will no doubt only add to the confusion and spawn a new generation of overtime claims.
Employers that plan now for the proposed overtime changes will be better prepared (i) to deal with the legal, financial, and management issues that will accompany these changes if they are adopted and implemented and (ii) to prevent overtime and employee mischaracterization claims regardless of whether the proposed changes are adopted and implemented.