By: Richard D. Miller, Esquire and Ben R. Patchen, Esquire
Published on: Tue 12th Sep, 2023 By: Campbell Durrant, P.C.
On August 30, 2023, the United States Department of Labor (“DOL”) issued a notice of proposed rulemaking that would significantly increase the minimum salary required to qualify for one of the three Fair Labor Standards Act’s white-collar exemptions (executive, administrative, and professional). The proposed rule would require employees to make more than $55,068 in order to qualify for one of the white-collar exemptions. As such, any employee who is making less than $55,068 and not otherwise exempt from the FLSA must be paid overtime for all hours worked over 40 hours per week.
Generally speaking, all nonpublic safety employees who are not exempt from the FLSA must be paid above the minimum wage and must be paid overtime for all hours worked over 40 in a workweek. Under current law, employees are exempt from the minimum wage and overtime requirement of the FLSA if they are (a) paid on a salary basis, earning a minimum weekly salary of $684 (or $35,568 per year), and (b) meet the duties test for an exemption. Each exemption has a different duties test that employees must meet to qualify for that exemption. While the proposed rule raises the salary threshold, it does not impact the duties test required to qualify for each exemption.
The proposed rule raises the annual salary threshold from $35,568 to $55,068. The salary rate is based on the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would be $1,059 per week ($55,068 annually) based on current data. However, it is important to be aware that the DOL will calculate the new salary threshold based on the 35th percentile calculation on the date the proposed rule goes into effect. This means that the salary threshold may end up being higher than the $55,068 number in the proposed rule.
The proposed rule also increases the salary threshold to qualify for the highly compensated employee exception from $107,432 per year to $143,988 per year. This number is based on the 85th percentile of full-time workers nationwide.
The DOL first indicated it would increase the salary threshold in 2021, but it was delayed several times and finally issued on August 30, 2023. The DOL’s intent was to increase overtime protection for an estimated 3.6 million workers who are currently classified as exempt employees due to their duties and salary, but will no longer be exempt because they make less than $55,068.
The new salary threshold will not be in effect until the DOL publishes its final rule. It is unclear when that will happen and it is likely there will be litigation to prevent the DOL from publishing the final rule. However, employers who have currently exempt employees who make between $35,568 and $55,068 and meet the duties test should be prepared to either reclassify those employees as nonexempt and pay them overtime or increase their salary above the threshold if they wish to keep those employees exempt should the final rules go into effect. It is always good practice to periodically review the classifications of employees to ensure they meet the requirement and are properly classified.
Takeaways:
• The Department of Labor issued a proposed rule which would increase the salary threshold for the Fair Labor Standards Act’s white-collar exemptions from $35,568 to $55,068.
• This increase expands the number of employees who will qualify for the exemptions and employers should review their exempt employees to ensure they are properly classified.
Bottom Line:
The Department of Labor issued a proposed rule which would significantly increase the salary threshold to qualify for the white collar exemptions. Employers should review the classification of employees and ensure that they are aware of exempt employees who make between $35,568 to $55,068 to be adequately prepared should the Department of Labor issue the final rule and the salary threshold increase goes into effect.
