On August 30, 2023, the US Department of Labor (DOL) announced a Notice of Proposed Rulemaking (NPRM) that it claims will “restore and extend overtime protections to 3.6 million salaried workers” throughout the United States. Under current rules, certain workers may be exempt from federal overtime requirements under the executive, administrative, and professional exemptions (White Collar exemptions) or under the Highly Compensated Employee exemption (HCE exemption)
1 provided that the worker performs certain duties for the employer and the worker is paid a salary that exceeds a minimum set out under DOL rules. The NPRM proposes an increase to the salary thresholds under both the White Collar and the HCE exemptions. The proposal also includes a mechanism for future automatic adjustments to the salary thresholds. The DOL did not, however, make changes to the duties test requirements under each exemption category.
According to the DOL, the NPRM would do the following:
- Restore and extend overtime protections to low-paid salaried workers. Many low-paid salaried employees work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week. Because of outdated and out-of-sync rules, however, the DOL believes these low-paid salaried workers are not getting paid time-and-one-half for hours worked over 40 in a week. The DOL’s proposed salary increase would help ensure that more of these low-paid salaried workers receive overtime protections traditionally provided by the DOL’s rules.
- Give valuable time back to workers who are not exempt under the executive, administrative or professional exempt classifications. By better identifying which employees are executive, administrative or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week.
- Prevent a future erosion of overtime protections and ensure greater predictability. The rule proposes automatically updating the salary threshold every three years to reflect current earnings data.
- Restore overtime protections for US territories. From 2004 until 2019, the DOL’s regulations ensured that for US territories where the federal minimum wage was applicable, so too was the overtime salary threshold. The DOL’s proposed rule would return to that practice and ensure that workers in the US territories subject to the federal minimum wage have the same overtime protections as other US workers.
Currently, employees that earn $684 per week (or at least $35,568 per year) meet the salary threshold to be classified as exempt from overtime under the federal White Collar exemptions. The NPRM proposes to increase the salary floor for the White Collar exemptions to $1,059 per week (or $55,068 per year). According to the NPRM, the proposed increase is based on the salary level of the 35th percentile of weekly earning for full-time salaried workers in the lowest-wage Census Region evaluated. While the increase nearly doubles the current federal salary threshold, the increased amount is still lower than the salary threshold required under several state exemption laws, such as California and New York.
Similarly, the NPRM proposes a significant increase to the salary threshold for the HCE exemption. Currently, the floor to meet the salary basis test of the HCE exemption is $107,432 annually. The NPRM proposes to increase the minimum amount to meet the salary threshold of the HCE exemption to $143,988 annually. Employers should review the job duties of employees who meet the current salary threshold but who will fall below the proposed increased threshold to ensure that the employees will continue to meet specific exemption requirements.
In addition, the NPRM proposes extending the new salary thresholds to the four US territories that are subject to the federal minimum wage—Puerto Rico, Guam, the US Virgin Islands, and the Commonwealth of the Northern Mariana Islands. This is a significant departure from prior DOL rules that excluded US territories from the salary threshold increase. The NPRM also includes changes to the base rate paid to employees in the Motion Picture Production Industry.
Finally, the NPRM proposes a mechanism that will automatically update the salary threshold for the White Collar exemptions and the HCE exemption every three years. According to the NPRM, the Secretary will determine the lowest-wage Census Region using the 35th percentile of weekly earnings of full-time nonhourly workers in the Census Region. For the Highly Compensated Exemption, the Secretary will use the 85th percentile of weekly earnings of full-time nonhourly workers nationally based on data from the Current Population Survey published by the Bureau of Labor Statistics. The NPRM requires the DOL to publish the increases based on its application of the above methodologies in the Federal Register 150 days prior to adopting the automatic increase. Prior attempts by the DOL to include this automatic mechanism have been thwarted as being beyond the authority of the DOL.
Although it is not yet published in the Federal Register, the NPRM will remain open for comment for 60 days following the date of publication.
Employers will want to look at their workforce classifications and the current salary levels to determine what changes, if any, are needed in response to this proposed increase in the event it becomes a Final Rule. For example, if employees will be reclassified, employers will have to consider any impact on compensation, given that they will now be eligible for overtime. This may include visiting how hourly rate will be determined, the impact of bonuses, the impact on benefits (to the extent that exempt and non-exempt employees receive differing benefits) and the possible effect those changes could have on existing or future restrictive covenants with employees. Similarly, if there will be changes to compensation, employers must consider any notice requirements those changes could trigger under state law.
Eversheds Labor and Employment attorneys have been following developments related to the DOL’s NPRM’s closely and will continue to do so.
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1 The Highly Compensated Employee exemption is similar to the White Collar Exemption but allows for a relaxed duties test when an employee’s salary exceeds the highly compensated employee exemption threshold based on authorities indicating that a high level of compensation, on its own, is an indication of exempt status.
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