The U.S. Department of Labor (“DOL”) has announced a proposed rule that may affect as many as 3.6 million workers. What is the proposal and how may it affect employers?
The DOL has proposed to increase the salary basis threshold for “white-collar” exemptions under the Fair Labor Standards Act (“FLSA”). Administrative, executive, professional, computer-related professional, and outside sales employees are exempt from “white collar” employees under the FLSA if they meet certain salary and “duties” tests, meaning they are not covered by the minimum wage, overtime, and certain record-keeping requirements of the law. Presently, the salary threshold to be considered a white-collar exempt employee is $684 per week or $35,568 annually. Under the proposal, the salary threshold would be increased to $1,059 per week or $55,068 annually.
By increasing the salary threshold, the proposed rule would guarantee overtime pay for most salary workers earning less than $1,059 per week, or $55,068 annually. According to the DOL, by better identifying which employees are executive, administrative, or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will receive additional compensation for hours worked in excess of forty (40) hours per workweek. To prevent a future erosion of overtime protections and ensure greater predictability, under the proposal, the threshold is set to increase automatically every three (3) years, based upon available wage data.
In addition to increasing the salaried threshold for white-collar exemptions, the rule also proposes to increase the salary exemption for “highly compensated employees.” Currently, highly compensated employees performing office or non-manual work and paid a total annual compensation of $107,432 per year (including payment of at least $684 per week on a salary or fee basis), are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee as identified in the standard tests for exemption. Under the proposal, the salary exemption threshold would increase to $143,988 per year, and just as the white-collar exemption threshold is set to increase automatically, the salary threshold is also set to increase automatically every three (3) years, based upon available wage data.
In order to bring uniformity to the states and U.S. territories that are subject to the federal minimum wage, the rule also aims to ensure that workers in U.S. territories also have these same overtime protections available.
What does this mean for employers?
If the DOL adopts the rule, salaried, exempt employees making less than $1,059 per week, or $55,068 annually, will either need to have their salaries increased to meet the higher threshold, or they will become non-exempt employees and will be eligible for overtime pay after working in excess of forty (40) hours in a workweek.
It is important to remember that an employee’s salary isn’t the only factor used to determine overtime eligibility; job duty requirements must also be met. The tests for determining exempt status measure the actual job duties, not the job title. In addition to salary, the determination also turns on the employee’s primary duty and level of discretionary authority.
So, how can employers prepare for the possible rule change?
- Review each employee’s salary.
- Review each employee’s classification – i.e., rather than adjusting an employee’s salary, consider whether it is worthwhile to reclassify exempt employees as non-exempt.
- Review your employee policy manuals to ensure that your policies are clear for exempt and non-exempt employees. For example, does your policy make it clear that non-exempt employees should not be working through lunches and after hours without permission from a supervisor?
- Review and make sure you are familiar with the white-collar duties test.
- Contact Critchfield, Critchfield & Johnston, Ltd. to review and discuss the status of your exempt/non-exempt employees and ensure that your business complies with the DOLs rules and the FLSA.
Also, keep in mind that the DOL’s proposal is not yet law and may be subject to attack in the courts. During President Obama’s administration, the DOL had proposed an increase to the salary thresholds, but that rulemaking was blocked in the courts and ultimately rescinded.
What is the proposal process?
The DOL will be accepting comments regarding the proposal for sixty (60) days following its official publication of the proposed rule, which is set to take place on October 30, 2023. The DOL will consider all comments received before publishing a final rule. Check back in the coming months to learn what comes of the DOL’s latest proposal to increase the salary threshold and extend overtime protections for exempt salaried workers.