Federal overtime pay provisions are part of the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the FLSA must be paid at a time-and-a-half rate for time worked over 40 hours in a work week. Under current law, workers who are salaried, earn at least $35,568 annually ($684 per week), and work in a bona fide executive, administrative, or professional capacity are exempt, meaning they are not entitled to overtime pay. The salary and duties tests must be satisfied to qualify for the exemption.
There is also an exemption from the FLSA’s overtime requirements for highly compensated employees (HCEs) earning total annual compensation of at least $107,432, provided they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee. So, while there is still a duties test, that test is minimal. A detailed duties analysis is not considered necessary because a very high level of compensation is a strong indicator of an employee’s exempt status.
The current standard salary and HCE salary levels have been in effect since January 1, 2020.
The DOL’s proposal would raise the standard salary level to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the South. That is $1,059 per week or $55,068 annually for a full-year worker.
The HCE total annual compensation threshold would be raised to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, which is currently $143,988.
The DOL is also proposing to add an automatic updating mechanism to the FLSA’s regulations to adjust these salary levels every three years consistent with current wage data. According to the DOL, the proposed automatic updating mechanism would allow for the timely, predictable, and efficient updating of the earnings thresholds.
The DOL proposal does not change the standard duties tests for the executive, administrative, or professional exemptions. The DOL said it favors the current standard duties tests, which are well known to employers and employees. The DOL believes that if paired with an appropriate salary level requirement, the standard duties tests can appropriately distinguish bona fide exempt employees from nonexempt workers.
If the standard salary level is increased as proposed, the DOL estimates that, in the first year, 3.4 million workers exempt under the current regulations will, without some intervening action by their employers, become newly entitled to overtime pay under the FLSA. Similarly, the DOL estimates that an additional 248,900 workers would become eligible for overtime if the HCE total annual compensation level is increased to the proposed level.