On August 30, 2023, the U.S. Department of Labor (DOL) proposed a regulatory rule that would raise the minimum salary threshold for employees who are classified as “exempt” under the white collar exemptions to the Fair Labor Standards Act (FLSA) by nearly 55 percent. The proposed rule would also create a new mechanism for subsequent, automatic increases every three years.
Under the proposed rule, the DOL seeks to:
- Increase the minimum salary threshold for employees classified as exempt under either the executive, administrative, or professional exemptions by changing the test so that the threshold increases from $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually).
- Increase the minimum salary threshold for highly compensated employees by changing the test so that the threshold increases from $107,432 per year to $143,988 per year.
- Apply the increased salary threshold requirements to Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands (the U.S. territories subject to federal minimum wage).
- Increase the special salary levels for American Samoa to 84 percent of the standard salary level (which under that test increase the threshold from $380 per week to $890 per week).
- Increase the base rate for exempt employees in the motion picture industry from $1,043 per week to $1,617 per week.
- Establish a new mechanism to automatically increase the minimum salary threshold every 3 years (i) for white collar exemptions to the current 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, and (ii) for highly compensated employees to the current annualized weekly earnings of the 85th percentile of full-time salaried workers nationally. These automatic increases could be temporarily delayed by the DOL when unforeseen economic or other conditions warrant.
The DOL has published FAQs about the proposed rule. Under the FLSA, employees must be paid at least the minimum salary threshold and the employee’s job position must also meet certain tests regarding their job duties for an employee to be properly classified as “exempt”. The DOL indicates that under the proposed rule, the agency expects many currently salaried employees to no longer be eligible to be classified as “exempt” and therefore eligible for overtime wages. The DOL has also clarified that the proposed rule does not seek to change the duties tests for these exemptions.
The DOL’s proposed increase comes after the Trump-era DOL raised the salary threshold in 2019 from the long-standing $455 per week to $684 per week (and also raised the highly compensated employee threshold to $107,432 up from $100,000). That action came after the Obama-era DOL attempted to raise the minimum salary threshold to $913 per week, but that increase was challenged by employer groups, stayed by a federal court, and ultimately withdrawn. The current proposed regulations appear susceptible to the same challenges raised by employer groups to the Obama-era regulations that were withdrawn.
Employers or other interested stakeholders will have 60 days from publication of the proposed regulations in the Federal Register to submit public comment to the DOL. Employers should monitor these developments and evaluate how the proposed rule will impact their workforce and current wage and hour practices. If you have any questions on these proposed requirements, need assistance developing wage and hour policies and procedures, or have other questions related to wage and hour compliance, please contact Betty Graumlich at firstname.lastname@example.org, Christopher Bouriat at email@example.com, Noah Oberlander at firstname.lastname@example.org, or the Reed Smith lawyer with whom you normally work.