The Department of Labor (DOL) recently announced a delay in the release of the proposed overtime salary threshold final rule. The Biden administration is seeking to revise the previous administration’s rule, which set the minimum salary level for exemption at $35,568, serving as the current overtime rule. The new proposed rule is expected to bring a significant increase in the salary threshold.

One of the main drivers of a substantial hike in the salary threshold is inflation. As a result, the purchasing power of the dollar decreases, making it necessary to adjust salary thresholds periodically to reflect the changing economic landscape.

Legal analysts have been closely observing these developments and foresee the new overtime salary threshold approaching or even surpassing the threshold proposed during the Obama administration, which stood at $47,476. This proposal was aimed at extending overtime eligibility to a larger number of workers by raising the salary threshold, ensuring fair compensation for employees who work beyond the standard 40 hours per week.

By adjusting the salary threshold, the DOL aims to protect workers’ rights and ensure they receive appropriate compensation for their time and efforts. The anticipated increase in the overtime salary threshold demonstrates the commitment to addressing income inequality and ensuring fair wages for American workers.

While the delay in the release of the proposed rule to August (and potentially beyond) may cause some uncertainty, it also allows for more thorough consideration and analysis of the potential impact of the revised threshold. The DOL can take into account various factors such as economic conditions, labor market trends, and input from stakeholders to determine an appropriate and sustainable overtime salary threshold. It is expected that once finalized, it will provide greater financial security for workers and contribute to a more equitable work environment.

Considerations

Deciding whether a position needs to be reclassified to Non-Exempt (eligible for overtime/hourly) or stay Exempt (not eligible for overtime/salary) is not as easy as it may appear, and there are several considerations to keep in mind. 

• Moving employees currently classified as Exempt to the new threshold (which will be higher), will have high financial impacts, as well as creating additional pay compression internally. In order to avoid pay compression, any salaries above those being adjusted would have to be adjusted as well; this “ripple effect” could be very costly.
• Employee salaries should be considered when identifying if they meet the new threshold test, but classification of Exempt and Non-Exempt should be done by job title.
• Managing the HR aspect and communication of this transition, particularly for those employees that are affected by the transition is vital.
• Modeling  the financial impact, once the new rule is announced, and having a plan in place will be an important step of deciding how to handle the new rule.
• Timekeeping and compensation policies will also be affected and may require training for employees who have had their classification changed.
• Remote work, typically reserved for Exempt employees with more flexibility with their schedules, may also be impacted and the policy may need to be updated.

No matter how your Tribe chooses to handle and implement the new regulation, one of the primary obstacles will be upholding employee morale and ensuring that all employees feel appreciated, regardless of their classification.

As you navigate this proposed change and are evaluating your approach, please reach out to us if you have any additional questions.