By Rachel H. Khedouri, Esq
UPDATE: The DOL’s Wage and Hour Division published its Notice of Proposed Rulemaking in the Federal Register on September 8, 2023, commencing the public comment period. Employers, workers and other interested stakeholders may submit comments through the Federal eRulemaking Portal or by mail by November 7, 2023. The proposed rule currently is scheduled to go into effect on November 7.
On August 30, 2023, the United States Department of Labor (“DOL”) finally announced a long-promised proposed rule that would significantly increase the minimum salaries workers must receive to qualify for exemption from wage and overtime rules under the regulations governing the Federal Labor Standards Act (“FLSA”). Once the DOL publishes the proposed rule – captioned “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” – in the Federal Register, the public will have 60 days to submit written comments. The DOL last raised the FLSA salary thresholds effective January 1, 2020 and further increases have been part of the agency’s stated agenda since at least June 2021. The DOL estimates that more than three million workers would become newly entitled to overtime pay under the new thresholds.
Under current law, employees with an annual salary below $684 per week ($35,568 per year) must be paid a minimum wage as well as an overtime premium if they work more than 40 hours in a week; the proposed rule raises this threshold to the level of the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census Region (currently the Southern U.S.). This level is $1,059 per week ($55,068 per year) based on 2022 data but the DOL has indicated that the final rule likely will have a higher threshold based on the most recent data then available. Workers making at least the applicable threshold still could be eligible for overtime if their job duties do not meet the definitions of executive, administrative or professional employees. Significantly, the proposed rule does not include any changes to the existing duties tests.
“Highly-compensated employees” are currently exempt from overtime if (i) their primary duty includes office or non-manual work and (ii) they customarily and regularly perform at least one of the responsibilities of an exempt executive, administrative or professional employee, even if they do not meet all of the other requirements of the standard tests for exemption. The proposed rule would increase the total annual compensation required to be considered “highly-compensated” from $107,432 to $143,988 based on 2022 data, of which at least $1,059 per week must be paid on a salary or fee basis. Again, this level is projected to increase by the time the rule is finalized.
The proposed rule would automatically update the earnings threshold every three years based on then-current earnings data. The DOL would have the power under the proposed rule to temporarily delay an automatic update if warranted by unforeseen economic or other conditions. Finally, the proposed rule would extend the standard salary level to workers in those U.S. territories subject to the federal minimum wage (Puerto Rico, Guam, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands)and increase the special salary levels for American Samoa and employees in the motion picture industry. More information about this proposed rule, including a set of Frequently Asked Questions, can be found on the DOL’s website HERE.
We will continue to monitor the status of this proposed rule and keep you informed. If you need assistance to ensure compliance with federal or local minimum wage and overtime requirements, including evaluating whether you are properly classifying members of your workforce as exempt from wage and hour laws, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100.