The U.S. Department of Labor (DOL) has proposed new regulations that seek to increase the salary thresholds for overtime pay exemptions under the Fair Labor Standard Act (FLSA). If implemented, nearly 3.6 million employees would lose their exempt status and be eligible for overtime pay according to the DOL’s current estimates.

The FLSA’s Current Requirements

The FLSA requires employers to pay employees 1.5 times their regular pay rate for hours worked in excess of 40 per week unless the employee meets the requirements for an approved exemption. Certain of these exemptions have a minimum income requirement. Among other requirements, the executive, administrative, professional, and computer exemptions require that the employee be paid at least $35,568.00 annually. The highly compensated exemption, which has different additional standards, requires total annual compensation of at least $107,432.00.

The Proposed DOL Rules

The proposed regulations target these exemptions for increases in the minimum salary requirement. If implemented, the new regulations would increase the salary threshold for the executive, administrative, professional, computer and outside sales exemptions by almost $20,000 – raising the rate from $35,568.00 to $55,068.00.  The threshold for the highly compensated employee exemption requirement would increase almost $37,000 – from $107,432.00 to $143,988.00.

Additionally, and perhaps most concerning, the proposed regulations would automatically increase these salary thresholds every three years to account for inflation.

What Employers Need to Know

According to Forbes, the average salaries in 18 of the 50 states in 2023 were under $55,068.00, which means the proposed rules would entirely change the overtime regulation landscape across the country. Should the proposed regulations be approved, employers will have to determine whether to meet the increase or convert employees from exempt to hourly. 

The proposed rules are open for public comment until November 7, 2023. While the outcome of these proposed rules is uncertain, Gray Reed's Labor and Employment Practice Group is diligently monitoring the situation and will provide timely updates to employers.

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