On August 30, the Department of Labor issued a proposed rulemaking aimed at extending overtime protections by raising the minimum salary threshold for “white-collar” exemptions to $1,059 per week (or $55,068 per year). White collar salaried employees are employees that are exempt from minimum and overtime wage requirements under the Fair Labor Standards Act because they are employed in an executive, administrative, or professional capacity (as defined by Department regulations).
If employees appropriately fall within one of the categories based on the duties performed in the job, then they must also be paid a pre-determined weekly fixed salary that meets a certain level. Currently, that salary amount must be at least $684 per week (or $35,568, annually). The proposed rulemaking increases that amount.
The proposed rulemaking also seeks to more frequently update earning thresholds without additional rulemaking or legislation. The proposed rules do this by automatically resetting the threshold every three years to the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (which is currently the South) using current wage data. The Department has provided a “fail safe,” however, to allow a temporary delay in any scheduled automatic update in the case of unforeseen economic (or other conditions) that would warrant a delay.
There are also some areas of special application of note in the proposed rulemaking regulations:
- The proposed rules would restore minimum salary thresholds to U.S. territories of Puerto Rico, Guam, U.S. Virgin Islands, and CNMI—returning to a pre-2019 policy of only setting special lower salary levels for employees in U.S. territories that are not subject to full federal minimum wage. All of those territories currently apply federal minimum wage. American Samoa would have a special salary level set at 84 percent of the standard salary level.
- The motion picture industry has a specific exemption that now sets the standard salary base rate at $1,117 per week, which can be proportionate based on number of days per week that are worked.
- The threshold for highly compensated employees (HCEs), which have a slightly abbreviated duties test as well as a higher salary, under the proposed regulations would be $143,988 per year, of which at least $1,059 per week would need to be paid on a salary or fee basis. This amount is set to be equivalent to the 85th percentile of earnings for full-time salaried workers on a nationwide basis.
The proposed rulemaking will be open for public comment for 60 days. It is possible that the comment period will be extended—this has happened before. The rulemaking has been a priority for the Department for some time which would seem to indicate that it will try to move forward. Similar rules enacted under the Obama administration faced legal challenges which could also occur here.
Key Takeaways for Employers
Employers in some states—for example, Washington—are already contending with salary thresholds that exceed the proposed salary levels. Under the proposed rules, these states may not see much, if any, impact should the new rules be adopted as proposed. For others, it is not too soon to consider the potential impacts on your workforce if the rules are enacted. If there is no legal challenge, the timeline for implementing the new salary thresholds after publication of the new rules will likely be relatively short. Employers should start to generally identify the jobs within their workforce that may fall around the threshold currently identified in the proposed rules. The salary threshold in the final rules could change from the proposed rules, so employers should look at jobs that fall within a range on both sides of the current salary threshold of about $55,000, annually. Assuming employees otherwise meet the fact-specific duties tests for white collar employees, employers should consider whether they will raise salaries to meet the salary threshold or reclassify employees to non-exempt and pay overtime. Employers will also need to consider how they will communicate these changes to employees when they are implemented.