DOL proposes increase to exempt salary level threshold
On August 30, 2023, the U.S. Department of Labor (DOL) announced long-anticipated proposed changes to the Fair Labor Standards Act's (FLSA) annual salary level threshold for exempt employees. Under the DOL’s proposed rulemaking, the annual salary level to qualify for exempt status would move from $35,568 to $55,068 per year for white-collar exemption positions.
The salary threshold requirement
To be considered exempt from overtime under the FLSA’s “white collar” exemptions, an employee must work in a position that meets the job duty requirements of an executive, administrative and professional position and the employee must be paid on a salary basis of at least the DOL’s established threshold amount. The DOL’s proposed change would move that established salary level threshold from the current $35,568 to $55,068 per year. The DOL’s proposed rule also includes automatic increases of the salary level threshold every three years.
The proposed salary level change would generally mean that an employee earning an annual salary under the $55,068 threshold would be eligible for overtime pay at 1½ times their regular hourly rate for hours worked in excess of 40 in a workweek. According to the DOL’s analysis, the salary level increase would mean that approximately 3.6 million workers could be newly eligible for overtime pay when they work over 40 hours in a week.
History of salary level increases
As many employers will recall, during the Obama administration the DOL proposed doubling the salary level threshold was $23,660 to $47,476 annually. That effort was blocked by a federal court that held that the DOL exceeded its authority by raising the salary level too high.
The Trump administration later implemented a more moderate increase in 2020 raising the salary threshold to its current level of $35,568 per year.
What’s next for employers?
The new rule is subject to a 60-day comment period. Following the comment period, the DOL may modify the rule or, more likely, issue the final rule as is with an effective day in early 2024.
Given the size of the increase and the history of successful litigation over the salary level threshold, employers can once again anticipate litigation over this salary level change.
In the meantime, however, employers can prepare for the proposed salary level increases by evaluating how the change may impact their workforces and their budgets. Employers should review whether they currently have exempt employees who fall in the salary band between $35,568 to $55,068 whose exempt status could change as a result of the proposed rule. Employers should consider the hours worked patterns and the potential impact of paying overtime compensation versus the impact of salary level increases for employees in that group.
As many employers will also recall from past salary level increases, implementing these changes takes time and thoughtful planning. Employers can prepare by beginning the process now so that they will be ready in 2024.
The McDonald Hopkins Labor and Employment law team will continue to provide insights on the proposed salary level rule and steps employers can take to prepare.