Will Legislation Affect the Anticipated Proposed Overtime Rule?

​A bill that would hike the overtime salary threshold to more than $80,000 by 2027 and have annual automatic updates may have little impact on the U.S. Department of Labor's (DOL's) anticipated overtime rule that's expected this spring, some say. But others say the bill, although unlikely to pass, might affect the rulemaking.

Bill's Provisions

The Restoring Overtime Pay Act of 2023, introduced March 29 by Sen. Sherrod Brown, D-Ohio, would raise the annual overtime salary threshold to:

• $45,000 beginning on the effective date of the bill.
• $55,000, as of Jan. 1, 2024.
• $65,000, as of Jan. 1, 2025.
• $75,000, as of Jan. 1, 2026.

As of Jan. 1, 2027, the threshold would be an annualized amount equal to the rate of the 55th percentile of weekly earnings of full-time salaried workers nationally, as determined by the Bureau of Labor Statistics starting with data from the second quarter of 2026.

Rep. Mark Takano, D-Calif., and Rep. Alma Adams, D-N.C., introduced the bill in the House of Representatives, and said in a joint statement that the salary threshold could increase to approximately $82,700 by 2027.  

Support for Bill

"The salary threshold became woefully out-of-date and ineffective as a result of not being sufficiently updated to keep pace with the changing economy, as evidenced by the fact that 63 percent of all full-time salaried workers were guaranteed overtime pay under Section 7 of the Fair Labor Standards Act of 1938 based on their salaries in 1975, while, in 2022, less than 15 percent of all full-time salaried workers are guaranteed such overtime pay," the bill stated.

U.S. Senate Majority Leader Chuck Schumer, D-N.Y., co-sponsored the legislation. "As our economy recovers, it is critical we invest in working Americans getting back on their feet by expanding overtime to pay them what they have earned," Schumer said. "Millions of Americans are being cheated out of wages as employers line their pockets. As leader, I have stood with working Americans over corporations and the well-connected. Passing the Restoring Overtime Pay Act will put more money in the pockets of workers and ensure every hour of work put in is valued."

Concerns About Legislation

If the legislation is enacted, employers could respond to the resulting increased costs by raising prices, which could worsen inflation, or by consolidating positions, said Tareen Zafrullah, an attorney with Faegre Drinker in Indianapolis.

For example, if two exempt employees each receive an annual salary of $35,568, the current minimum amount to be exempt, the employer could discharge one employee, shift that worker's duties to the remaining employee and increase the remaining worker's salary to the minimum required amount, he said.

Alternatively, employers could reclassify exempt employees as nonexempt if employers thought the minimum salary threshold was too high. "This could upset employees who like being classified as exempt due to the perceived prestige and because they don't need to record all hours worked," Zafrullah said.

Some employees may prefer to be classified as exempt if the employer has an unlimited paid-time-off policy for exempt workers but not for nonexempt employees, he added. "The legislation would take away this flexibility from employers and employees," he said.

In addition, the bill, if enacted, could increase lawsuits alleging that employers failed to accurately track and pay for all hours worked. Due to the nature of some positions—for example, those that are performed remotely, involve travel, or include responding to phone calls and e-mails outside normal work hours—it may be difficult to accurately track all hours worked, Zafrullah said. "It may be better to classify the positions as exempt, but the legislation would make it harder to classify positions as exempt," he noted.

He said the bill is unlikely to pass in the Republican-controlled House of Representatives, or in the Senate where it would likely need 60 votes due to the filibuster. "Even if Democrats gain control in the House in the future, the bill may not survive a filibuster in the Senate," Zafrullah predicted.

Any Effect on Rulemaking?

Might the bill affect the DOL's proposed rule on overtime?

No, said Susan Boone, an attorney with Fisher Phillips in Columbia, S.C. She noted that the last regulatory change to the overtime rule, which increased the salary threshold to $35,568, was less than three years ago, so many employers are still adapting to that.  

In the 2019 rule, which took effect Jan. 1, 2020, the DOL updated the standard salary level by applying the same methodology that was applied in the 2004 rule, which tied the salary threshold to then-current population survey (CPS) data, Boone noted. The DOL used pooled 2018/2019 CPS data to ascertain that the 20th percentile of earnings for full-time salaried workers in the South Census Region and/or in the retail industry corresponded to a salary level of $684 per week, she said. Two federal overtime regulations have successfully used that methodology, so any deviation from that is likely to be challenged, Boone added.

However, James Coleman, an attorney with Constangy, Brooks, Smith & Prophete in its Washington, D.C.-Northern Virginia office, said, "The legislative proposal does provide the DOL with a target." He noted it is widely anticipated that the regulatory proposal will dramatically increase the salary threshold.

Zafrullah said the DOL's anticipated overtime rule might—like the overtime rule adopted during the Obama administration and blocked by a court—be challenged if the salary threshold is too high. Moreover, Congress alone rather than the DOL arguably has the authority to provide for automatic increases, he said.

Employers should be prepared for an increase in the threshold, Boone said. "Employers should be reviewing their compensation data to determine which exempt employees earn between $684 and $1,000 a week and may be impacted by what is expected in the DOL regulation," she said. "Once the rate is announced, employers will have to make a decision about whether to increase the salaries of affected employees to the new level or convert them from exempt to nonexempt."