In a significant but not surprising move, the Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking on August 30, 2023, proposing to increase the Fair Labor Standards Act’s (“FLSA’s”) minimum salary threshold for white-collar overtime exemptions.

The DOL’s proposed rule primarily deals with Section 13(a)(1) of the FLSA, which exempts from the minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity” (the “white-collar exemption”).

To qualify for the white-collar exemption each of the following tests must be met:

1. The salary-basis test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
2. The salary-level test: The amount of salary paid must meet a minimum specified amount (currently $684 per week, or $36,568 per year); and
3. The duties-test: The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

The proposed rule would revise the FLSA regulations to: 

• Increase the FLSA regulations’ standard salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year);
• Increase the total annual compensation requirement for highly compensated employees from $107,432 per year to $143,988 per year;
• Restore overtime protections for U.S. territories, ensuring workers in those territories where the FLSA minimum wage applies have the same overtime protections as other U.S. workers; and
• Automatically update earnings thresholds every three years so they keep pace with changes in worker salaries, ensuring that employers could adapt more easily because they would know when salary updates would happen and how they would be calculated.

The proposed rule would, however, not make changes to the FLSA’s “duties test” for determining overtime eligibility.

In a News Release, the DOL stated that the rule would “restore and extend” overtime protections. While an increase in the salary threshold is perhaps unavoidable and even necessary, the change undoubtedly will burden employers across a wide range of industries.

We do not expect that the proposed rule will go without challenge. Notably, this proposal follows in the path of the Obama administration, which sought to raise the overtime cutoff for most salaried employees to $47,500, but was blocked by a federal judge.

Once published to the federal register, the proposed rule will be open to comment for 60 days. Given the impact to employers, we are closely monitoring this issue for any updates or changes that may arise.

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