There’s a New Salary Threshold on the Horizon: Proposed Rule to Increase the Salary for Overtime Exemptions
On August 30, 2023, the Department of Labor (DOL) released a Notice of Proposed Rulemaking, proposing to increase the salary threshold for an exemption from minimum wage and overtime under the Fair Labor Standards Act (FLSA). The proposal (if finalized as-is) would increase the salary level threshold to $55,068 annually from the current threshold of $35,568 annually for most white-collar exemptions to overtime requirements, including the executive, administrative and professional exemptions. This is a weekly salary increase from $684 per week to $1,059 per week. The proposal also includes an increase in the annual compensation level for the highly-compensated employee exemption from $107,432 to $143,988. While there may be challenges to the implementation of the proposed increase, employers should review their salary levels and consider the impact that such a change would have on their overall salary costs and timekeeping systems.
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 than the threshold amount or do not meet the various duties tests, they must be paid one and one-half times their regular hourly rate for hours worked in excess of forty (40) in a workweek.
According to the DOL, the proposed increase in the salary threshold will impact 3.6 million workers, resulting in either higher salaries or the payment of overtime. The DOL also proposes increases to the salary levels every three years, using a number that is the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region, which is the South. For the highly-compensated employee exemption, the DOL proposes using a threshold set at the 85th percentile of the earnings of full-time salaried workers nationwide.
What happens next? Once the proposed rule is published in the Federal Register, the DOL will accept comments for a period of 60 days. The comment period may be extended, as it was when the DOL proposed prior increases, due to the number of comments received. After the comment period closes, the DOL will take some time to review the comments and publish a final rule, which may be identical to or somewhat different than the proposed rule. The DOL proposes that the final rule be effective 60 days after its publication, which likely means that the new rule will take effect in 2024. In the meantime, we anticipate that business groups may prepare challenges to the implementation of the final rule.
What should you do? As mentioned above, employers should review their salary levels to determine what changes will need to be made if the new salary threshold is implemented. Some employers may choose to raise salaries of those exempt employees who are relatively close to the threshold. Others may choose to start paying overtime to currently exempt employees who are below the threshold. The second option will require that employers start keeping records of the time those employees work, which may require updates to timekeeping policies or systems. Employers will want to take into account the impact of the change on employee morale, as some employees consider being paid on a salary basis (and not recording their time) to be a sign that they are being treated like a professional. In addition, this is a good time to reassess the classifications of employees as exempt under the FLSA, even those who may be paid above the proposed new salary threshold.
We will monitor the progress of this proposal, and any challenges to it, and provide updates on this topic. If you have questions or would like assistance with a review of your exempt employee classifications, please contact
Tami Earnhart or another member of
Ice Miller's Workplace Solutions Practice Group.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.