Recently, the U.S. Department of Labor (DOL) announced a proposed rule to increase the salary threshold for overtime exemption. The proposed rule would ensure overtime pay for most low-paid salary workers who earn less than $1,059 a week (or $55,000 a year). By the DOL’s estimates, this proposed rule would benefit 3.6 million employees. Additionally, the proposed rule seeks to further clarify the categories of executive, administrative, and professional employees under the Fair Labor Standards Act’s (FLSA’s) overtime exemption rule. In April 2023, the U.S. Court of Appeals for the First Circuit (First Circuit) interpreted the FLSA’s administrative exemption rule for a case in New Hampshire.
Current Salary Threshold and Overtime Exemption Under the FLSA
As the nation’s primary wage law and one of the major employment laws employers must follow, the FLSA establishes minimum wage and overtime pay for non-exempt part-time and full-time employees. However, under section 13(a)(1) of the FLSA, employees paid above the FLSA’s current salary basis are generally exempt from overtime provisions. To qualify for overtime exemption, employees must be paid on a salary basis at not less than $684 per week. These exempt employees must also perform at least one of the duties of an executive, administrative, or professional employee. These duties include:
- company or departmental management;
- regularly directing work;
- hiring, firing, promoting, or suggesting such employment actions;
- exercising discretion and independent judgment in matters of significance;
- performing work that requires advanced knowledge in science or learning acquired through specialized academic training; and
- using originality, talent, imagination, or invention in a recognized artistic or creative field.
Proposed Rule to Increase Salary Threshold
The DOL’s proposed rule would increase the salary threshold for overtime exemption under the FLSA to $1,069 per week ($55,000 per year). This means that salaried employees who earn less than $55,000 a year would be eligible for overtime pay. With this proposal, the DOL seeks to extend overtime protections to millions of low-paid salaried employees. According to the DOL, many of these low-paid salaried employees work alongside hourly employees and do the same tasks. Like their hourly counterparts, they often work over 40 hours in a workweek. However, they are not paid an overtime rate for those hours. The department’s proposed rule would rectify this problem. In addition, the proposed rule seeks to accomplish the following:
- Better identify which workers qualify as executive, administrative, or professional employees for overtime exemption under the FLSA;
- Create an automatic update schedule to adjust the salary threshold every three years to reflect the most up-to-date earnings data; and
- Restore overtime protections for U.S. territories that previously applied from 2004 to 2019. This would ensure that employees in U.S. territories where the federal minimum wage applies receive the same overtime protections as other U.S. workers.
The DOL last updated overtime exemption regulations in 2019. That update set the current salary threshold of $684 per week (or $35,568 per year). In the last four years, the department relates, salaried workers in the U.S. economy have experienced rapid growth in their nominal wages. This lessens the effectiveness of the current salary threshold. To learn more, employers may read the DOL’s list of frequently asked questions on the proposed rule.