The U.S. Department of Labor (DOL) has recently proposed a new rule that would significantly impact corporate compliance strategies by expanding overtime protections for white-collar workers. The proposed rule would increase the salary threshold required for most white-collar exemptions, making millions of additional workers eligible for overtime pay.

Currently, the Fair Labor Standards Act (FLSA) requires that employees who work in executive, administrative, professional, and certain computer positions meet both the salary basis test and the job duty requirements to be classified as exempt from overtime rules. The current threshold salary is $684 per week, amounting to $35,568 annually. 

However, under the DOL’s new proposal, the guaranteed salary that most employees must receive to qualify as exempt from overtime rules would increase dramatically to over $55,000 annually. If the proposed rule goes into effect, the DOL anticipates that more than 3.6 million currently salaried employees across the country will now qualify for overtime exemption.

The proposed rule aims to achieve the following objectives:

1. Reinstate and expand overtime protections for low-paid salaried workers. Many low-paid salaried workers perform the same tasks as hourly workers and often work more than 40 hours a week. However, due to outdated rules, these workers do not receive overtime pay for extra hours worked in a week.

2. Provide non-exempt executive, administrative, or professional employees with more time or additional compensation. By better identifying which employees are exempt from overtime pay, the proposed rule will ensure that non-exempt employees either gain more time back in their day, or receive additional compensation when working more than 40 hours a week.

3. Prevent future erosion of overtime protections and increase predictability. The rule proposes to automatically update the salary threshold every three years based on current earnings data.

4. Restore overtime protections for U.S. territories. From 2004 to 2019, the department’s regulations ensured that the overtime salary threshold applied to U.S. territories where the federal minimum wage was applicable. The department’s proposed rule would return to this practice and ensure that workers in these territories have the same overtime protections as other U.S. workers.

In addition to this significant increase in the salary threshold, the DOL also proposes to add an automatic updating mechanism to increase these salary thresholds every three years based on available earnings data. This would ensure that the salary thresholds remain up-to-date and reflective of current economic conditions.

The proposed rule has been met with mixed reactions from employers and employee advocates. While some argue that the changes are necessary to ensure that middle-class jobs pay middle-class wages, others believe that the current hiring and retention issues, supply chain disruptions, and inflationary pressures are all reasons why the DOL should not proceed with a rulemaking this change.

If the proposal is accepted as currently written, it will mean significant changes for employers in compensation structure. Employers will also need to review their workforces to determine what changes may be necessary if the proposal is adopted as currently written. Possible considerations include raising the salary of employees who meet the duties test to at least $55,068 annually to retain their exempt status or converting employees to non-exempt status and paying them overtime pay.

The proposed rule also has implications for corporate compliance strategies. 

1. Employers will need to ensure that they are in compliance with the new overtime rules and may need to update their policies and procedures accordingly. This could include updating timekeeping systems and training managers on how to properly classify employees as exempt or non-exempt.

2. In addition, employers may need to consider how these changes will impact their overall compensation structure. For example, if an employer chooses to convert employees from exempt to non-exempt status, they may need to adjust their pay rates or hours worked in order to maintain their overall labor costs. Employers may also need to consider how these changes will impact employee morale and retention.

3. One potential challenge for employers is determining how to properly classify employees as exempt or non-exempt under the new rules. The FLSA’s duties test can be complex and requires a detailed analysis of an employee’s job duties and responsibilities. Employers may need to seek legal counsel or consult with human resources professionals in order to ensure that they are properly classifying their employees.

4. Another potential challenge for employers is managing the increased labor costs associated with paying overtime to newly eligible employees. Employers may need to adjust their budgets or find other ways to offset these costs in order to maintain profitability.

Overall, the DOL’s proposed rule represents a significant shift in overtime protections for white-collar workers and has the potential to impact corporate compliance strategies. Employers should continue to monitor developments in this area and be prepared to make necessary changes if the proposal is adopted as currently written. It remains to be seen what final form the rule  regulations will take and how it they will ultimately impact employers and employees alike.