The U.S. Department of Labor (DOL) recently proposed a rule to raise the salary threshold for the white collar overtime exemptions from the current $684 per week minimum ($35,568 annualized) to $1,059 per week ($55,068 annualized). As a refresher, under the federal Fair Labor Standards Act (“FLSA”), employees are generally entitled to be paid overtime for hours worked over forty (40) in a seven (7)-day workweek, unless an overtime “exemption” applies. The so-called “white collar” exemptions require employees to be paid a guaranteed minimum weekly salary at a certain level, in addition to performing exempt job duties, to qualify for exempt status.
If the proposed rule goes into effect, most employees earning an annual salary of less than $55,068 would be entitled to receive overtime pay—time and a half their regular hourly rate—for any time worked more than 40 hours in a workweek, regardless of their job duties. The proposed changes would also include automatic updates to the salary threshold every three years and raise the salary requirement for what is known as the “highly compensated individual exemption” from the current $107,432 per year to $143,988. The DOL estimates that these changes would impact 3.6 million workers.
If the proposed changes go into effect, employers will need to decide whether to increase impacted worker salaries above the threshold to avoid overtime obligations or reclassify lower-earning workers as non-exempt and therefore subject to the timekeeping and overtime requirements of the FLSA. Employers who faced this same choice in 2019—the last time the DOL increased the white-collar salary threshold—will recognize the importance of getting a head start on thinking through a plan of action. However, keep in mind that the proposed change has not gone into effect yet. The proposed rule will be published in the Federal Register, and the notice of proposed rulemaking will then be open for public comment for at least 60 days. The DOL may make some changes to the proposal as a result of public feedback, and the proposal may be challenged in court, which could further delay implementation. Nevertheless, prudent employers should consider taking steps now to get ready for likely changes.
As a first step, employers should identify current exempt salaried employees who earn between $35,568 and $55,068 per year. Then, start thinking about the organizational impact, including both morale and budgetary considerations, of salary increases versus reclassification. An important aspect of this will be considering the amount of weekly overtime actually worked by these employees.
Employers should also seize the moment and review their overall FLSA compliance. Although the proposed rule changes to the salary threshold will not impact the “duties test” for exemptions, or other aspects of FLSA compliance, any change by the DOL presents a window of opportunity for employers to conduct a full self-audit to make sure that all of their practices are sound, and to correct any errors while coming into compliance with changes in the law. Remember that any employees you classify as exempt must qualify for exempt status based on their job duties as well as their pay, so you may want to conduct a duties classification analysis as part of your review.
Finally, you should also start thinking about how you are going to notify and train impacted workers. Remember that any employees reclassified as non-exempt will need to be trained on timekeeping procedures, to avoid “off the clock” FLSA violations.
As always, if in doubt, consider seeking the advice of an experienced employment attorney.