On August 30, 2023, the U.S. Department of Labor announced its proposed new regulations on who can be treated as exempt from overtime pay. These proposals have been in the pipeline for nearly two years, with many in the business community anxious about what to expect. Some of that anxiety was somewhat undeserved, but some fears have been realized.

At this time, the proposals are just proposals. The DOL is giving stakeholders 60 days to comment. It will then consider the comments and issue final rules. That may be as soon as next Spring to avoid the risk of a new Congress stepping in and vacating them. But Congressional action is only one concern that the DOL has. If the final regulations resemble the proposed regulations—as is usually the case—lawsuits are assured.

Here are the highlights of the proposal –

  • The minimum salary level for most exempt executive, administrative, and professional employees to be exempt will increase from $684 per week (or $35,568 per year) to $1,059 per week (or $55,068 per year). That’s a 55% increase!
  • The DOL is reserving the right to adjust the salary level amount to account for any delays in implementation. If such a delay is reached in the fourth quarter of 2023, the new minimum salary level could be as high as $1,158 per week (or $60,209 per year).
  • In addition, the minimum salary for those eligible for the “Highly Compensated Employee” test would increase from $107,432 per year to $143,988 per year.
  • Employees in Puerto Rico, Guam, and the U.S. Virgin Islands would have to be paid per these new salary levels versus the lower threshold provided by the current rules.
  • And finally, the proposal would require that the minimum salary level increase by an index every three years.

What’s not in the proposal –

  • Despite many concerns about the breadth of the proposal being worked on by the DOL, the DOL opted to not tinker with the “duties tests” for the various white-collar exemptions. However, the DOL has implied that should its proposal not survive court challenges, it would have no choice but to revisit the duties tests, an outcome that could raise even more outcry.

Other facts –

The DOL states that if implemented, these rules would result in 3.4 million employees losing their exempt status, or about 7.7% of the currently exempt workforce. Closer scrutiny of its statistics suggests that the number may be closer to 11.7 million employees, or 27% of the exempt workforce.

If implemented, what will it mean?

  • Those vulnerable to losing their exempt status could retain it if their base pay is increased. For those close to the new threshold, that may not be a major cost.
  • Work done by those who may lose their exempt status may be shifted to those whose exempt status remains intact.
  • Those losing their exempt status will basically become hourly employees, even if their salaries remain intact. Their base pay also may be vulnerable to being reduced to lessen the impact on employers of having a new large group of employees eligible for overtime compensation (particularly to those who regularly work overtime).
  • Those losing their exempt status also may be limited in their ability to work over 40 hours per workweek, and they may also lose certain benefits designed for exempt workers, including bonuses.
  • While the increases will be burdensome for many employers, they will be more burdensome for small employers, non-profits, start-ups, rural employers, and public employers.

Bottom line, the DOL’s claim that it is “restoring overtime” may not be as positive as it predicts.

What lies ahead?

The next step is the comment period and eventually the publication of a final rule. Once that happens, litigation is virtually assured. In 2016, when similar aggressive changes were promulgated, a federal court enjoined them from going into effect. That court ruled that given the number of employees impacted just based on their base pay rates, the very legitimacy of the salary rule was called into question. On that note, it is difficult to understand why an employee paid $36,000 on the day before the new rule may go into effect would lose that exemption on the very next day when the employee is performing the exact same duties on both days. Moreover, the Supreme Court has since revitalized the “major question” doctrine, and given the impact the anticipated rule would have on the nation’s workforce, that doctrine may also be implicated by a lawsuit claiming that such a major change can only happen by Congressional action.

Meanwhile, employers should file Comments and let the Department of Labor know where they stand and what concerns they may have. They also should review whose exempt status may be implicated and consider what options they may have to weigh if the rules are implemented. Any of Dykema’s labor and employment attorneys can be contacted for assistance.