How to Prepare for the Proposed Overtime Rule Changes

Editor’s note: The April 2024 overtime rule raises the standard salary-threshold levels for white-collar exemptions to overtime requirements in two phases. Workers who do not earn at least $43,888 ($844 a week) as of July 1, 2024, would have to be paid overtime, even if they’re classified as a manager or professional. The salary-level threshold rises to $58,656 a year ($1,128 a week) as of Jan. 1, 2025. There are automatic increases to the salary threshold every three years.

On Sept. 8, 2023, the U.S. Department of Labor (DOL) issued a proposed rule that would increase the salary threshold to $1,059 a week ($55,068 annualized) for the Fair Labor Standard Act's (FLSA's) white-collar exemption from overtime pay.

While the final rule may differ from the current proposed rule, employers can follow these steps to prepare for the upcoming overtime rule changes and create a strategy for compliance.

Step 1: Understand the Rulemaking Process

According to the DOL, "rulemaking is the term used when a government agency creates, modifies, or deletes rules in the Code of Federal Regulations (CFR). Rules are government agency statements (or parts of government agency statements) that either:

• Implement, explain or prescribe law or policy, or
• Describe an agency's organization, procedure, or practice requirements."

Once an agency decides that a regulatory action is necessary, it develops and publishes a Notice of Proposed Rulemaking (NPRM) in the Federal Register, soliciting comments from the public on the regulatory proposal. After the agency considers the public feedback and makes changes where appropriate, it publishes a final rule in the Federal Register with a specific date upon which the rule will become effective and enforceable. In issuing a final rule, the agency must describe and respond to the public comments it received.

See Regulations and the Rulemaking Process.

The remainder of this guide assumes that the final overtime rule will contain the same provisions as the currently proposed rule. Based on the comments received (see step 3), the final rule may differ from the proposed rule and this guide will be updated to reflect the changes, if necessary.

Step 2: Review the Proposed Rule

The proposed rule includes the following provisions:

• Increase the standard salary level to the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would be $1,059 per week ($55,068 annually) based on current data.
• Apply the standard salary level to Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands, and increase the special salary levels for American Samoa and the motion picture industry.
• Increase the highly compensated employee (HCE) total annual compensation requirement to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, which would be $143,988 per year based on current data.
• Automatically update these earnings thresholds every 3 years with current wage data to maintain their effectiveness.

Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may continue to be used to satisfy up to 10 percent of the standard salary level.

No changes to the duties tests were proposed.

Step 3: Submit Comments

The DOL encourages the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA39. To be considered, comments must be submitted on or before Nov. 7, 2023, (60 days from the Federal Register publication) in order to be considered.

Commenting on the proposed rule allows employers to communicate to the DOL the impact the revised regulations will have on their workplace, including:

• Practical barriers to complying with the proposed rule.
• Suggested alternatives to alleviate the barriers and any negative impact of the proposed rule.
• The need for clarification on specific points within the proposed rule.

Step 4: Conduct an Impact Analysis

Review exempt positions that are currently paid below $1,059 per week and determine what strategy to adopt to comply with the new regulations. Consider the financial impact of raising the salary versus paying for overtime as well as employee perceptions of fairness and impact on morale. Use SHRM's Impact Analysis Guide and Calculator to create a spreadsheet that outlines the different pay options and the potential costs of each. Keep in mind that the proposed minimum salary could change significantly depending on public comments and/or the data used at the time the final rule is issued.

Step 5: Decide on a Plan

Based on the impact analysis completed in step 4, HR professionals should present a proposal to senior management outlining how the overtime rule will affect the organization and what option(s) are preferable to avoid significant financial impact and employee morale concerns. Offer recommendations that are based on solid data and explain how the preferred options are linked to better business results and the company's overall strategy. A decision by senior management should be made prior to the next budget planning cycle to ensure additional wages and expected benefit changes are budgeted for in the upcoming year.

Step 6: Create a Communication Plan

Once the final rule is issued, HR should develop a communication plan to announce the changes to affected employees. Educating employees on the regulatory changes and the analysis completed by the employer can help individuals understand why the changes are necessary. 

If the workplace as a whole needs clarification on the overtime rule changes and how individuals will be impacted, consider providing an overview of the new rule and how the employer is responding in general (e.g., by conducting an impact analysis and communicating with affected individuals directly). 

Related Resources:

SHRM FLSA Exemption Classification Resource Hub Page

Proposal: Restoring and Extending Overtime Protections