The United States Department of Labor released a proposed rule on August 30, 2023, that would increase the minimum salary for “exempt” employees from $684 per week ($35,568 a year) to $1,059 per week ($55,068 a year). This $19,500 per year jump is substantial. The increase applies to bona fide executive, administrative, and professional employees who are exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (“EAP exemption”). The proposed rule would also increase the minimum salary level for the highly compensated employee exemption from $107,432 to $143,988. The rule has built-in increases every three years to reflect current earnings data. The minimum salary for the EAP exemption is tied to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). Whereas, the salary level for highly compensated employees is tied to the 85th percentile of the nation’s full-time salaried workers. The DOL estimates the increase in minimum salary levels will impact more than 3.6 million employees who are currently exempt from overtime but making less than the new proposed salary thresholds.
The public is allowed to submit comments to the DOL addressing the proposed rule, which the DOL will consider before enacting its final rule. Once enacted, the proposed rule will in all likelihood be challenged in court. The current salary threshold is facing a challenge in federal court, and an Obama administration’s previous attempt to raise the minimum salary level was defeated in court. Even if the rule encounters legal battles, prudent employers may wish to proactively prepare now for future increases to the minimum salary levels. This involves reviewing workforce pay data to identify individuals or groups of employees who fall below the proposed minimum salary levels, and making decisions about whether to increase their salaries above the new thresholds, or instead convert them to hourly compensation and pay overtime for all hours worked over 40 in a workweek. When making these decisions, employers should consider the automatic salary increases under the proposed rule, and analyze the employees’ job duties to confirm the employees are properly classified as exempt under one of the FLSA’s exemptions. We will continue to monitor the DOL’s proposed rule to provide relevant updates as it works its way through the comment period towards enactment.
