The Department of Labor’s Wage and Hour Division is expected to propose new rules on independent contractor classification and overtime entitlement requirements in the coming weeks. The proposals would alter the qualifications for certain employees to receive overtime payments under the Fair Labor Standards Act when they work in excess of 40 hours in one week.
The Fair Labor Standards Act (“FLSA”) grants the Department of Labor authority regarding overtime eligibility under the statute. Currently and among other considerations, employees are non-exempt under the FLSA when they earn less than a guaranteed $684 per week or $35,568 per year. If the DOL raises this salary threshold, as it is considering, an even larger swath of the workforce could be entitled to overtime payments.
The proposals follow President Biden’s withdrawal of former President Trump’s independent contractor rule in May 2021, which had not yet taken effect when President Biden took office. However, United States District Judge Marcia A. Crone held in March 2022 that the DOL had not properly followed the requirements for withdrawal as set forth in the Administrative Procedure Act. In so holding, Judge Crone gave the Trump administration’s independent contractor rule the effect of law as if it had gone into effect in March 2021, as scheduled. The Biden administration’s proposed changes to the existing rule will likely affect the salary basis and exemption requirements of the employee versus independent contractor misclassification analysis under the FLSA. Employers should prepare for these upcoming changes by reviewing their employee job descriptions and time record procedures. Employers should also engage counsel to re-examine their employee classifications at large to ensure their exempt employees are truly exempt under the current rules and that they understand that changes may need to be implemented when the new rules take effect.
