On Aug. 30, the U.S. Department of Labor announced a new proposed rulemaking that would alter overtime regulations under the Fair Labor Standards Act. The proposal increases the minimum salary level threshold to $55,068 annually for a full-year worker and automatically updates the threshold every three years.
“ABC is disappointed that the DOL is moving forward with a proposed overtime rule since multiple industries, like construction, are still grappling with the lingering economic consequences of inflation, global supply chain disruptions, rising materials prices and workforce shortages, all of which push operational costs ever higher,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs in a statement immediately following the DOL announcement.
“It is unfortunate that the DOL did not listen to our repeated requests to abandon or postpone issuance of the proposed overtime rule until the current economic situation stabilizes or improves, allowing employees and employers to fully navigate the paradigm shift of work in America without new unnecessary and costly red tape,” said Brubeck.
ABC’s general counsel, Littler Mendelson P.C. has prepared an analysis of the proposed rule, which includes the following details:
- Salary Level. The DOL proposes to set the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region (currently the South). In contrast, the current $684 per week ($35,568 annualized) salary level was established in 2019 based on a much lower metric—the 20th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region and in the retail industry nationally. Using data from 2022, the DOL reports that using the 35th percentile would cause the salary level to jump more than 50%, to $1,059 per week ($55,068 annualized). The DOL claims, however, that when it promulgates the final rule, it will use the most recent data then available. This could result in a salary level much higher than $55,068. For example, the DOL projects that, by the fourth quarter of 2023, the salary threshold could be as high as $1,140 per week ($59,285 annualized), and that, by the first quarter of 2024, the salary threshold could be as high as $1,158 per week ($60,209 annualized).
- HCE Test. The DOL also proposes to significantly raise the total annual compensation needed to qualify for exemption under the streamlined test for highly compensated employees (the “HCE test”). Currently, employees with total annual compensation of $107,432 qualify for exemption under the HCE test. That figure was calculated in 2019 using the 80th percentile of full-time salaried workers nationally. Under the proposed rule, the amount needed to qualify for the HCE test would be based on the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally. Based on 2022 data, the DOL reports that the HCE test would require total annual compensation of $143,988. Again, however, the DOL indicates that it will use the most recent data available at the time the final rule is promulgated, which may lead to a much higher annual threshold.
- U.S. Territories. The proposed rule would apply the increased salary level to employees in all territories that are subject to the federal minimum wage (including Puerto Rico, Guam, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands, where the salary level is currently just $455 per week). The rule would set a special salary level for American Samoa, equal to 84% of the general salary level, up from the current $380 per week threshold.
- Automatic Updates. The proposed rule includes triannual updates to the salary levels. Every three years, the DOL would update the salary levels using the same methodologies described above, using the most recently available four quarters of data as published by the U.S. Bureau of Labor Statistics. The new salary levels would be published at least 150 days before they take effect. The rule would allow the DOL to temporarily delay a scheduled automatic update where unforeseen economic or other conditions warrant.
ABC will submit comments in opposition to the proposed rule, which are due 60 days after its official publication in the Federal Register.
On May 25, 2023, ABC, as a steering committee member of the Partnership to Protect Workplace Opportunity, as well as 103 other organizations, sent a letter to Acting Secretary of Labor Julie Su urging her to abandon or at least postpone issuing the DOL’s proposed rulemaking to alter the overtime regulations under the FLSA.
Further, the letter stated that the DOL’s last update to the overtime regulations went into effect in 2020—just three years ago—which strongly suggests there is no need for urgency in issuing more changes.
In spring 2022, ABC and the employer community participated in DOL listening sessions, warning that any rule change is ill-advised.
In 2016, the Obama administration issued a final overtime rule that would have doubled the minimum salary level for exemption from $23,660 to $47,476 per year. ABC, along with several other business groups, sued the DOL in federal court and succeeded in blocking the rule from taking effect.
In 2019, the Trump administration issued a new overtime rule, which formally rescinded the 2016 rule and readjusted the minimum salary level for exemption to $35,568 per year. The final rule went into effect on Jan. 1, 2020.