Employers should regularly review job descriptions and their system for classifying employees as exempt and non-exempt from overtime pay as a regular part of their employment processes. This best practice has recently become more important after the U.S. Department of Labor (DOL) published a proposed rule that, if implemented, will once again modify the law surrounding overtime classification.
On September 8, 2023, the DOL announced the publication of a Notice of Proposed Rulemaking, which, if implemented, will increase the salary level that qualifies certain employees as exempt from the overtime rules and regulations and will revise the compensation threshold for employees to fall within the highly compensated employee exemption from overtime.
Generally, all employees are presumed to be eligible for overtime pay unless they fall within one of the statutory exemptions set forth in the Fair Labor Standards Act (FLSA) and/or related state laws. Employers bear the burden to establish that an employee is exempt from overtime pay. Of course, many employees appropriately fall within these exemptions, the most common being the executive, administrative, professional, outside sales, and highly compensated employee exemptions. As of today, for an employee to fall within an exemption and to be properly classified as overtime exempt, the employer must establish that an employee:
- is a salaried employee (as opposed to hourly);
- earns a salary level of at least $684 per week (equivalent to $35,568 annually for full-time employee; and
- primarily performs executive, administrative, or professional duties as set forth in the FLSA and supporting regulations.
Importantly, employees must satisfy all three requirements for an employer to properly classify them as overtime exempt. The fact that an employee is salaried, alone, is insufficient for an employer to classify that employee as exempt.
Under the proposed rule, the first and third prongs will remain the same. However, the DOL seeks to amend the second prong by increasing the salary threshold to $1,059 per week ($55,068 annually). As a result, any employee who satisfies the first and third prongs, above, and earns $55,068 or less annually must be classified as non-exempt (i.e., overtime eligible). If the proposed rule is implemented, the number of overtime eligible employees will certainly increase (the DOL estimates that 3.4 million workers will become overtime eligible). For example, today, employees who earn $40,000 annually and satisfy the first and third prongs are properly classified as overtime exempt. However, under the proposed rule, those same employees would no longer satisfy the salary test (i.e., the second prong) and, therefore, employers must classify them as non-exempt despite their satisfying the first and third prongs.
In addition, the proposed rule will increase the minimum salary threshold for an employee to fall within the “highly compensated employee” overtime exemption from $107,432 to $143,988 (with all regulatory requirements for qualification remaining the same). The proposed rule will not amend any of the regulations that determine whether employees fall within the executive, administrative, professional, or other exemptions permitted by the FLSA.
Public comment concerning the DOL’s proposed rule is open until November 7, 2023. Given past history, the time for comment may be extended, and the DOL is not likely to make a final decision concerning implementation of the proposed rule (or a further amendment) until early to mid-2024. Until the rule is finalized and the regulations are amended (if at all), the current state of overtime affairs and analysis remains in place.
Nevertheless, employers should take this opportunity to review how they classify their employees and to prepare for the potential impact of an increase in the number of non-exempt employees who were previously overtime exempt. Further, employers should closely review their job descriptions and conduct a general assessment of their employee classifications to ensure that they presently comply with the FLSA and state laws. Misclassification of employees as overtime exempt when they do not satisfy all three prongs of the analysis could result in unpaid wages subjecting employers to the Massachusetts Wage Act (and its treble damages and attorneys’ fees provisions) as well as the FLSA.
We will continue to monitor developments relating to the proposed rule and will provide additional updates. Employers with questions are encouraged to contact an employment attorney at Kenney & Sams.
This alert is for informational purposes only and may be considered advertising. It does not constitute the rendering of legal, tax or professional advice or services. You should seek specific detailed legal advice prior to taking any definitive actions.