Salary Threshold for Exempt Employees

On August 30, 2023, The Department of Labor (DOL)?proposed?an increase to the?Fair Labor Standards Act's (FLSA's) annual?salary-level threshold and a revision of the “white collar” overtime exemption regulations applicable to executive, administrative, and professional employees. The threshold will increase to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). Using 2022 data, this amount comes out to $55,068, up?from the current amount of $35,568.?The DOL claims, however, that when it announces the final rule, it will use the most recent data available. This could result in a salary level much higher than $55,068.?The department also is proposing automatic increases every three years?to the overtime threshold. The new proposed revisions include a universal standard for all 50 states and U.S. Territories (except for American Samoa).

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The proposed rule would, according to the DOL, do the following:

• Restore and extend overtime protections to low-paid salaried workers. Many of these employees work side by side with hourly employees, doing the same tasks and often working over 40 hours a week.
• Automatically update the salary threshold every three years to reflect current earnings data.
• Restore overtime protections for U.S. territories. From 2004 until 2019, the department's regulations ensured that for U.S. territories where the federal minimum wage was applicable, so too was the overtime salary threshold. The department's proposed rule would return to that practice and ensure that workers in the U.S. territories subject to the federal minimum wage have the same overtime protections as other U.S. workers.

The DOL says they are “committed to ensuring that all workers are paid fairly for their hard work. For a long time now, many low-paid salaried workers have been denied overtime pay, even though they often work long hours and perform much of the same work as their hourly counterparts.” This proposed rule would ensure that more workers receive extra pay when they work long hours.

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To be exempt from overtime under the FLSA's "white-collar"?executive, administrative, and professional exemptions, employees must be paid a salary of at least the threshold amount and?meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1?1/2 times their regular hourly rate for hours worked more than 40 in a workweek. There will be no changes to the duties test for qualifying as an exempt executive, administrative, or professional employee.

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Under the new rule, approximately 300,000 more manufacturing workers would be entitled to overtime pay, the Labor Department reports. A similar number of retail workers would be eligible, along with 180,000 hospitality and leisure workers, and 600,000 in the health care and social services sector. In?total, overtime protections would be extended to?approximately 3.4 million workers in the first year of the new rule, according to the DOL. ?

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There will be a public comment period to allow for stakeholder input and comments on the proposal.? This comment period will end at 11:59pm ET on November 7, 2023.

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Call to Action: While this proposed overtime rule is likely to be challenged in court after it is finalized, employers should start examining how it will affect their workplaces, legal experts say. Businesses don’t need to make any concrete changes right now, but it is never a bad time for employers to review and audit their workplace and employee duties and responsibilities and determine that employees are properly classified as exempt or non-exempt. And while employers can put a plan in place for complying, they should be careful not to finalize or roll out anything too soon.

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If you have any questions about how this could impact your business, or how to stay compliant, please feel free to reach out to us at [email protected]. We are happy to answer your questions and provide guidance for moving forward.

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