On September 8, 2023, the U.S. Department of Labor’s (DOL) Wage and Hour Division announced publication of a Notice of Proposed Rulemaking that seeks to amend the regulations issued under section 13(a)(1) of the Fair Labor Standards Act (FLSA). These regulations implement the exemption from the minimum wage and overtime pay requirements for executive, administrative, and professional employees, known as the “white collar” exemption. The proposed amendment would increase the minimum salary levels needed to qualify as exempt and would provide an automatic mechanism for future updates of the salary thresholds to reflect changes in earnings data.
Under the FLSA, all employees must receive overtime pay for all hours worked over forty hours per week unless specifically exempted by the FLSA. The FLSA establishes certain exemptions based on an employee’s “primary” duty, such as “executive”, “administrative”, and “learned professional”. In addition, exempt employees must fall within the “white collar” exemption, which applies if:
(1) they are paid on a salary basis, earning at least $684 per week (or $35,568 per year) and meet the “long form” test for their exemption category; or
(2) they are a “highly compensated employee,” meaning they earn at least $107,432 per year and meet the so-called “short form” test regarding their duties.
The DOL’s proposed rule would raise the $684 per week threshold to an amount equal to the “35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region,” which is currently equal to $1,059 per week ($55,068 per year). The proposed rule would also revise the “highly compensated employee” threshold to the “85th percentile of full-time salaried workers nationally,” currently $143,988 per year. The DOL has stated that when it promulgates the final rule it will use the most recent salary data available.
The proposed rule would also include future updates to the salary levels every three years using the same methodologies described above, calculated from the most recently available four quarters of earnings data. The new salary levels would be published by the DOL at least 150 days before they take effect.
Before the revised rule becomes final there is a mandatory period for public comments that ends on November 7, 2023. While the exact timeline for implementation of the final rule is unknown, the DOL’s previous amendment to these regulations saw a ten-month timeline between publication of the proposed rule and of the final rule.
Employers who wish to proactively prepare for this anticipated rule should consider how to treat exempt employees who currently earn an annual salary between $35,568 and approximately $60,000. Employees who have been treated as exempt based on their duties will no longer be exempt unless they meet the new, substantially increased salary thresholds .
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This update is provided for informational purposes only and should not be considered legal advice.