By Alicia H. Koepke
On August 30, 2023, the Department of Labor (DOL) announced its proposed rule that would significantly increase the minimum salary to be paid to certain employees for those employees to remain exempt from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA). Specifically, the DOL’s proposed rule would:
- Increase the minimum salary (or, if applicable, fee basis) required for most executive, administrative, and professional employees from $684 per week to $1,059 per week (i.e., from $35,568 per year to $55,068 per year);
- Increase the minimum total annual compensation required for the highly compensated employees’ exemption from $107,432 per year to $143,988 per year; and
- Automatically update those thresholds every three years based on current earnings data.
The DOL will accept comments from the public relating to its proposed rule for a 60-day period; once the notice-and-comment period closes, the DOL will review the comments received and evaluate whether to revise the proposed rule before publishing it as a final rule. If the DOL finalizes the rule in its current form, it is very likely to be challenged in court. If the rule withstands legal challenges and goes into effect, employers will be required to either increase applicable exempt employees’ salaries so that they can remain exempt or reclassify such employees as non-exempt. If employees are reclassified as non-exempt, employers will be required to ensure such employees receive minimum wage for all hours worked plus overtime pay at a rate not less than one and one-half times the regular rate of pay for all hours worked over 40 in a workweek.
As a reminder, for employees to be exempt from the right to receive minimum wage and overtime pay, employers must ensure that employees meet certain duties requirements in addition to meeting the salary test. The DOL’s proposed rule would increase the salary test but does not change the duties tests for the exemptions.
It is never too early to start preparing for these proposed changes, as they would have significant financial and other repercussions for businesses. In addition to discussing classification and other wage-and-hour compliance issues with employment counsel, employers should review their employee benefits plans to see if they will be affected by any changes, and review and evaluate whether they would need to revise personnel documents, agreements, and policies to reflect any changes. Further, employers should consider training employees (especially those who will be reclassified as non-exempt) on how to appropriately track and record time worked, how to seek approval for working overtime and the prohibition on working “off the clock.” Finally, many employers will need to budget for increased pay-related expenses.
