Potential Significant Increases in Salary Minimums for “White Collar” Overtime Exemptions are on the Horizon

Adams and Reese LLP

Adams and Reese LLP

On September 8, 2023, the U.S. Department of Labor formally proposed an almost 65% increase in the minimum salary requirements under the federal Fair Labor Standards Act for certain overtime pay exemptions used by employers in a wide array of industries. If the proposed rule becomes final in early 2024, employers would be required to increase annual salaries for employees classified under these exemptions by $19,500 per year to maintain those exempt classifications.

Although there are a host of FLSA exemptions, most employers are familiar with and primarily concerned with the so-called “white collar” exemptions for executive, administrative, and professional employees. To qualify for these exemptions, the employee must perform exempt duties (as defined by the statute and DOL regulations) and receive a bona fide salary (or fee for professional workers).

As the DOL proposed in the Federal Register, the salary minimum for these exemptions would increase by $375 per week from the current minimum of $684 per week ($35,568 annually) (where it has been since 2020) to $1,059 per week ($55,068 annually). The proposed rule also would set up a new mechanism to automatically increase the minimum salary threshold every three years.

The DOL estimated that, within the first year at the new salary level, 3.4 million currently exempt employees who earn less than $1,059 per week would lose the overtime pay exemption, unless the employer increased their salaries to at least the new salary level.

The 60-day public comment period regarding the proposed rule expires on November 7, 2023. As with the DOL’s 2016 unsuccessful attempt to raise the salary minimum to $921 per week, the proposed rule may draw legal challenges.

Employers should be proactive and begin evaluating whether to reclassify workers as non-exempt and begin paying overtime or to increase salaries above the potential minimum. The DOL regulatory action also provides a good opportunity for employers to assess whether employees currently classified as exempt are also satisfying the “duties” tests required for the exemptions. Employers also should carefully review whether salary increases to preserve overtime exemptions might lead to claims of discrimination from employees who do not receive pay raises.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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