On August 30, 2023, the U.S. Department of Labor issued proposed regulations that would sharply increase the minimum salary requirements for the Fair Labor Standards Act’s white-collar overtime exemptions. These proposed regulations, if they take effect, would impact millions of currently exempt employees and create significant compliance issues for many employers.
Background and History
The FLSA’s white-collar exemptions are applicable to “bona fide” executive, administrative, and professional employees and generally include both a minimum salary requirement and a duties test. To establish that an employee is properly classified as exempt from overtime pay requirements under one of these exemptions, the employer must be able to prove that the employee is paid on a salary basis in an amount at least equal to the minimum salary requirement and meets the primary duties test for one of these exemptions.
Over the last eight years, the minimum salary requirement for these exemptions has become a battleground.
In 2016, the Obama Administration DOL issued new regulations that would have more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 ($23,660 annually) to $913 ($47,476 annually). A federal judge issued a nationwide preliminary injunction blocking these changes from taking effect in late 2016, and the Trump Administration DOL ultimately abandoned these regulations.
In September 2019, the Trump Administration DOL issued new regulations that increased the minimum weekly salary requirement from $455 to $684 ($35,308 annually). Those changes took effect in January 2020.
The 2023 Proposed Regulations
On August 30, the Biden Administration DOL issued a new Notice of Proposed Rulemaking on this issue. The proposed regulations would make the minimum salary requirement equal to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census region, which currently is the southern U.S. Based on 2022 data, this number would be $1,059 per week ($55,068 annually). However, the DOL indicated that it will use the most recent data available when it issues the final regulations, which likely will result in a significantly higher threshold. The DOL projects that the minimum weekly salary threshold could be as high as $1,140 ($59,285 annually) by the final quarter of 2023.
In addition, the DOL proposes tying the minimal annual compensation threshold for the FLSA’s highly compensated employee exemption to the 85th percentile of salaried workers nationally. Again, based on the 2022 data (which is less than what the final number likely will be), this change would increase this annual compensation threshold from $107,432 currently to a number likely in excess of $143,988.
The DOL projects that 3.6 million currently exempt workers would be affected by these changes in the first year after the proposed regulations are implemented.
That’s not all. The proposed regulations include automatic updates (i.e., increases) every three years to these minimum salary levels, using the same methodology for calculating the threshold numbers based on the statistical data.
The proposed regulations do not include any changes to the white-collar exemptions’ duties test.
The public will be able submit comments on the proposed regulations for 60 days after their publication in the Federal Register. After the comment period closes, the DOL stated that it will consider the comments submitted before issuing final regulations. When those final regulations will be issued is unknown, but we likely will see final regulations in 2024 before the next presidential election.
It is safe to assume that legal challenges will be filed in response to any final regulations that are ultimately issued. Whether those legal challenges will be successful in blocking any final regulations (like what happened in 2016) is unknown.
In the meantime, employers should monitor developments and begin the process of identifying employees currently classified as exempt under one of the white-collar exemptions who are paid a salary amount below the projected new minimums. If these proposed regulations take effect, employers will need to consider either increasing those employees’ salaries, identifying another exemption without a minimum salary requirement that may be applicable, or converting those employees to non-exempt status for overtime pay purposes.
More to come.