On August 30, 2023, the Department of Labor (“USDOL”) announced the issuance of a Notice of Proposed Rulemaking (NPRM), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. The NPRM proposes to update and revise the regulations issued under section 13(a)(1) of the Fair Labor Standards Act. These rules and regulations implement the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees. Such proposed revisions would bring major changes to the number of employees who would now qualify for overtime payments.
In particular, the proposed revisions would do the following: increase the standard salary level and the highly compensated employee total annual compensation threshold for qualifying for overtime, as well as providing an automatic updating mechanism that would allow for the timely and efficient updating of all the thresholds to reflect current earnings data. Once these new regulations are published in the Federal Register, the USDOL will ask for public commentary as part of the federal rulemaking process.
One of the most significant changes under these proposed rules involves changing what salary threshold must be met to establish the salary test requirement of the overtime rule. Currently, to meet this requirement, an employee must be paid at least a specified weekly salary level, which is $684 per week (the equivalent of $35,568 annually for a full-year employee) in the current regulations (the “salary level test”).
Under the proposed rules, this salary test requirement would change as follows: (1) increase to the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would be $1,059 per week ($55,068 annually) based on current data; (2) apply the standard salary level to Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands, while increasing the special salary levels for American Samoa and the motion picture industry; and (3) automatically update these earnings thresholds every 3 years with current wage data to maintain their effectiveness.
In addition to changing this important salary threshold, the regulations would likewise increase the highly compensated employee (HCE) total annual compensation requirement to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, which would be $143,988 per year based on current data.
Taken together, these two changes would increase the total number of employees who would be able to collect overtime significantly beyond that current number today.
We will continue to keep track of these new regulations as they proceed through the rulemaking process and will provide updates on these potentially important changes to federal overtime rules.
