In a much-anticipated proposed rule, the U.S. Department of Labor announced its intention to raise the minimum salary for workers to be exempt from overtime pay under the Fair Labor Standards Act.
Congress enacted the FLSA 85 years ago to eliminate substandard wages, protect workers from excessive hours, and reduce overall unemployment. One way the FLSA is designed to achieve these goals is by requiring time-and-a-half pay for work over 40 hours in a week. Congress believed this would incentivize employers to widen their distribution of work, e.g., to hire two workers for 40 hours rather than one worker for 80 hours.
But not all workers are covered by the FLSA’s overtime-pay requirements. Current federal regulations say certain “bona fide” executive, administrative, and professional employees are not entitled to overtime compensation if paid at least $684 a week, or $35,568 per year, on a salary basis. The DOL’s proposed rule would increase this threshold to at least $1,059 a week, or around $55,000 per year, with a mechanism for future increases every three years.
If adopted, the rule would force employers to choose between increasing salaries for exempt workers currently making less than $55,000 or paying overtime to those workers. However, the rule could face challenges in court. A similar rule, which would have raised the threshold to around $47,000, was blocked during the Obama administration.
The impact of the rule would be less significant in states like Colorado where wage-and-hour laws already impose salary requirements that exceed federal thresholds. In Colorado the minimum salary for exemption from overtime laws is currently $961.54 a week, or $50,000 per year, and will increase to $55,000 in 2024. In California the current threshold is $64,480 per year. Of course, the proposed rule would still impact employers in these states to the extent they have employees working in jurisdictions where the FLSA's thresholds have not been superseded.
Businesses and nonprofits with questions about overtime pay and exemptions should contact their Sherman & Howard employment law attorney.