On September 8, 2023, the United States Department of Labor (DOL) published a Notice of Proposed Rulemaking Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (the “Proposed Rule”). The Proposed Rule substantially increases the minimum salary requirements for the “white-collar” exemptions to the federal overtime requirements. To satisfy the “white-collar” exemption requirements, and to avoid overtime payments required by federal law, an employee must satisfy the minimum salary test, the salary basis test, and the duty requirements. The Proposed Rule does not make any changes to the duties test for the white-collar exemptions.
The Proposed Rule proposes significant changes to the existing salary level for the “white-collar” exemptions which include exemptions for certain executives, administrative professionals, outside sales, and computer employees. If the employee does not meet the minimum standard salary requirement, the analysis ceases; the employee is not exempt and must be paid overtime. The Proposed Rule significantly increases the minimum salary level to $1,059 per week. Currently the salary level is $684 per week. This raises the annual salary requirement from the current $35,568 annually to $55,068 annually, a nearly 55% increase.
In addition, the Proposed Rule increases the annual compensation level for highly compensated employees from the current level of $107,432 annually to $142,988 annually. The Proposed Rule would also implement a triennial automatic increase to the salary threshold. This automatic increase has never been included in the wage and hour rules since the inception of the Fair Labor Standards Act almost 100 years ago.
The Proposed Rule is now open to public comment through November 7, 2023. Once the comment period closes, the DOL must review and address all substantive comments. The DOL has already received over 200 comments. The DOL is proposing the rule will become effective 60 days after the DOL publishes the final rule.
During the Obama era, the DOL also tried to double the salary standard threshold and make other changes similar to those being proposed by the current administration, but a federal judge held the DOL exceeded its authority. The DOL will almost certainly face legal challenges to its latest rulemaking, including questions about the agency’s authority to impose the salary threshold increase, as well as its authority to implement automatic updates to those thresholds.
Implications for Employers
Employers who currently have exempt workers who earn more than $684 per week but less than $1,059 per week should analyze those employment situations and develop a strategy to implement once the DOL issues the final rule. Generally, employers can choose to either raise the employee’s salary to comply with the new rule or reclassify the employee as non-exempt and pay overtime. Employers must also consider the myriad of state laws that affect wage and hour requirements. Certain states already include higher salary requirements and have their own exemptions and salary levels without reference to the Fair Labor Standards Act. Davenport Evans lawyers are here to guide employers as they consider different compliance strategies.