Does the DOL's proposal to extend overtime protections affect you?

Employers may have another compliance challenge on their hands if the Department of Labor's proposal to extend overtime protections for workers moves forward. But in light of today's economy, it may be time for a change.

The DOL has proposed that the minimum salary threshold for overtime eligibility should be increased from $35,568 per year — in place since 2020 — to $55,000 per year. This means anyone who makes less than $55,000 and works over 40 hours in a week is entitled to overtime, extending protections to an estimated 3.6 million salaried workers, according to the DOL. U.S. territories subject to the federal minimum wage will also be granted the same protections.

The new threshold would impact many employers' payrolls, but the DOL believes this update is necessary, says Noah Finkel, partner at global law firm Seyfarth. Finkel has represented nearly 200 companies in wage and overtime matters. 

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"The [DOL's] perception is that the minimum salary level to be exempt from overtime has not increased to a sufficient level," says Finkel. "Their goal is to include more workers who are entitled to overtime pay, and therefore, the DOL thinks [these workers] will make more money as a result."

However, Finkel is critical of whether this new rule would ensure workers are making more money for the labor they put in. Theoretically, employers will need to pay more workers overtime or could also bump their salary so it surpasses the minimum threshold under the new law. However, employers could try and cut corners by lowering employees' salaries, based on the assumption that employees will make up the difference with overtime, explains Finkel.

For Finkel, it's clear employers are anxious about what this means for their budgets and predicts legal action against the DOL for trying to increase the threshold. Notably, the DOL has also proposed an automatic increase to the threshold every three years. 

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"There already have been some legal challenges to both the Department of Labor's ability to require a minimum salary level, and whether the increase is just unreasonably high," he says. "On the effective date of the final rule, employees who receive overtime will be more expensive employees than they are now — and that poses a problem for employers."

Still, depending on the state and industry, many employers may find that they aren't impacted by the proposal. For example, most workers in the tech industry make above the overtime threshold, while states like New York and California have current thresholds that exceed the $55,000 mark. But other employers in industries like food or hospitality, or in rural parts of America may not have the budget to be compliant. They will have to ensure they are not working their employees past 40 hours if they cannot compensate them for it. 

"The DOL says that they have considered different regions and different industries before arriving at this new [threshold]," says Finkel. "But their ultimate proposal may still be too high for several businesses in certain areas."

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The DOL's comment period on its overtime proposal is open to the public until November 7. Finkel encourages employers to make their criticisms and support of the proposal known there. In the meantime, employers should take the opportunity to review their employees' salaries and roles to confirm their compliance with current overtime protections. To be exempt from overtime protections, employees not only have to make above the set threshold but must work in a role deemed professional, administrative or executive in nature by the DOL. 

"This is an occasion to take a broader look at how [employers] have classified employees," says Finkel. "Because the minimum salary level is just one aspect of what makes an employee exempt."