Understanding the Proposed Increase in Overtime Salary Threshold by the DOL

Recently, the Department of Labor (DOL) has proposed a significant change to the minimum salary required for certain employees to be classified as exempt from minimum wage and overtime pay. This revision is a major shift that companies need to be aware of and prepare for.

Why the DOL Shouldn't Intrude on Company Pay Decisions

It's important to emphasize that the federal government, through the DOL, trying to dictate what companies should or should not pay their employees is overreach. The Biden Administration has overstepped its authority in this regard. Instead of focusing on such detailed regulations, the government should encourage employers to comply with minimum wage laws without imposing arbitrary salary thresholds.

The Proposed Changes to the Overtime Salary Threshold

The DOL's proposed rule would require that executive, administrative, and professional (EAP) employees earning the minimum salary to be classified as exempt be paid at least $1,059 per week ($55,068 per year). Currently, this minimum salary is $684 per week ($35,568 per year). Similarly, the highly compensated employee (HCE) exemption, which has its own criteria, would require an annual salary of at least $143,988, significantly higher than the current $107,432. These changes also propose automatic updates to these salary levels every three years.

Current Requirements and Proposed Changes

Currently, to be classified as exempt, EAP employees must earn at least $684 per week. Under the proposed rule, this minimum would likely increase to $1,059 per week. Additionally, for highly compensated employees, the current requirement is $107,432 per year, which could jump to $143,988 per year if the proposed rule is adopted.

Timeline for the Proposed Rule

The proposed rule was published on September 8th, kicking off a 60-day comment period. During this time, the DOL will accept feedback from anyone interested. Once the comment period closes, the DOL will review the feedback and potentially make changes before finalizing the rule. The entire process is likely to take several months. In 2016, it took 11 months from the release of the proposed to the final rule, but the DOL seems to be aiming for a shorter timeline this time. They suggested that these changes could potentially take effect within 60 days of the final rule publication.

Impacts on Employers and Planning

While it may be premature to start addressing the impacts of this rule change, employers who want to maximize their preparation time should consider the following:

Reclassification of many employees as non-exempt may be necessary, which will require communication, HR updates, and administrative hassle. If exempt employees are currently working more than the 40-hour threshold, employers need to determine which employees won't receive raises large enough to maintain the exemption. Employers may need to redistribute work, find other efficiencies, or potentially alter aspects of their business operations to avoid paying overtime. Employees transitioning from exempt to non-exempt roles will need training on new responsibilities, such as logging time, observing lunch and break policies, and managing overtime.

By understanding and preparing for these changes, employers can ensure a smoother transition and minimize disruptions to their workforce.