Proposed rule aims to expand overtime eligibility for millions of workers, prompting concerns and planning

Proposed rule aims to expand overtime eligibility for millions of workers, prompting concerns and planning

By on Sep 3, 2023 in Blog, Compensation, Compensation Consulting, Compliance, HR Consulting, Human Resources consulting |

The US Department of Labor [DOL] has introduced a proposed rule that could reshape overtime protections for a considerable number of employees, potentially extending eligibility to approximately 3.6 million more workers. Under the proposed changes, the annual salary-level threshold for white-collar exemptions to overtime requirements and for highly compensated employees would be increased. In addition, the DOL suggests implementing automatic threshold increases every three years. This proposal has sparked discussions and raised concerns among employers and experts alike, as it could lead to various implications for businesses and employees.

The heart of the proposed rule involves significant changes to the current overtime eligibility criteria. If the rule is finalized and implemented, it would result in an expansion of overtime protections, encompassing millions of additional workers who were previously exempt from such benefits. The adjustments include raising the annual salary-level threshold for white-collar exemptions to overtime requirements and a corresponding increase for highly compensated employees. Moreover, the proposal introduces the concept of automatic threshold hikes at regular intervals, which would potentially impact a broader range of employees over time. This rule aims to provide enhanced financial and time-related benefits to workers, but its potential ramifications are multifaceted and require careful consideration.

While the proposed changes intend to bolster worker protections, they also present a series of potential challenges and considerations for employers.

  • One key aspect is the decision employers will face regarding their approach to employees falling between the current and proposed new salary thresholds. The adjustment could result in significant financial implications for businesses as they navigate the choice between raising salaries to meet new thresholds or converting employees to nonexempt status, thus incurring overtime costs.
  • This choice also carries nonmonetary considerations, such as the potential resistance from employees accustomed to being salaried and not punching a clock. As a result, businesses would need to recalibrate their timekeeping practices and potentially address employee concerns in response to the proposed changes.

Despite the potential benefits of the proposed rule, experts emphasize the importance of preparing for potential challenges and uncertainties. The rule’s predecessors have faced legal challenges in the past, indicating that a similar fate could await the proposed rule once it is finalized. Therefore, employers are advised to proceed with caution and start planning for compliance well in advance. This preparation entails not only a consideration of financial impacts but also a thorough assessment of employees’ job duties to ensure alignment with exemption criteria. Additionally, the proposed rule’s implications extend beyond federal regulations, with varying state-level overtime laws introducing further complexity. States with higher salary thresholds, such as California and New York, would require employers to navigate both federal and state compliance simultaneously.

Mistakes to Avoid:

  • Lack of preparedness: Employers should not wait for the rule’s finalization to start planning for compliance. Being proactive will help manage potential financial and operational challenges that might arise from the changes.
  • Narrow focus on salary: While salary thresholds are a key aspect of overtime eligibility, employers must remember that compliance requires alignment between employees’ job duties and exemption criteria.
  • Underestimating employee response: The transition from salaried to hourly roles could encounter resistance from employees who value the prestige of salaried positions. Employers should be prepared to address these concerns.
  • Ignoring state regulations: Employers need to account for variations in state overtime laws, as some states have higher salary thresholds that employers must meet.

The DOL’s proposed rule seeks to broaden overtime eligibility, potentially affecting millions of workers across different industries. While the proposed changes aim to enhance worker benefits, they also present a complex array of considerations for employers, including financial, operational, and employee-relations aspects. As the rule progresses through potential legal challenges and revisions, businesses are urged to take a proactive approach to compliance, keeping in mind both federal and state-level requirements. The proposed rule’s impact extends beyond financial calculations, prompting employers to address cultural and operational shifts in their workforce as they adapt to the changing landscape of overtime regulations.

Understanding overtime and exemptions is an issue that many employers struggle with getting right.  The rules are well-established but many simply don’t know or understand them fully.  If you need help with classifying employees properly and understanding the risks of not doing so, contact us.