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E-Alert: DOL Proposes Major Increase to Salary Threshold for FLSA Overtime Exemptions

On August 30, 2023, the United States Department of Labor (DOL) announced a proposed rule that would significantly increase the salary threshold for certain employees to be properly considered exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). If these changes go into effect, an estimated 3.6 million salaried employees nationwide would become eligible for overtime pay. If enacted, some employers will need to make significant changes to employee classification and compensation to remain compliant with the law.

The FLSA generally requires that employees receive the federal minimum wage, plus an overtime premium for all hours worked over 40 in a workweek. However, the FLSA exempts several categories of employees from the overtime pay requirement, including salaried “white collar” employees who work in a bona fide “executive,” “administrative,” “professional” capacity. Other exemptions exist for salaried employees in outside sales and certain computer-related positions. Job titles alone do not determine an employee’s exempt status; the employee’s duties are the key focus. If a salaried employee is misclassified as exempt from the FLSA’s overtime requirements, the employer may be liable for unpaid overtime compensation for any hours the employee works over 40 in a workweek, in addition to other damages.

Generally, employees who otherwise meet the criteria for exempt classification must make at least $684 per week ($35,568 annualized) on a salary basis. If not, they cannot be classified as exempt. The DOL’s new proposal, if implemented in its current form, would raise the weekly salary threshold to $1,059 a week ($55,068 annualized). In other words, it would require employers to pay almost $20,000 more in annual salary to employees for them to be eligible under the FLSA’s “white collar” exemptions to overtime-pay requirements. Some exempt employees, including attorneys, physicians, teachers, outside sales employees, and computer professionals are not required to be paid on a salary basis.

The FLSA also currently provides for a “highly compensated employee” overtime exemption, available for salaried employees who make at least $107,432 per year and regularly perform job duties inherent to at least one of the above-described “white collar” exemptions. The DOL’s proposal would raise the annual threshold for these employees to at least $143,988. The proposal would also update the new salary thresholds every three years, using wage census data to ensure alignment with prevailing market conditions.

Importantly, the DOL’s proposal is not yet the law. It will be published in the Federal Register and subject to a 60-day public comment period. The DOL will then review all submitted comments and decide whether to modify the proposed rule. The agency would then issue a final rule, which could take effect in 2024. Legal challenges to the rule would likely follow, but employers should not count on litigation to relieve their obligation to remain compliant with the law.

Employers should be mindful that significant changes may soon be needed. To better understand how this could impact your business, you should work closely with competent counsel to assess the need to review your current pay practices, identify any potentially affected salaried employees, and determine whether changes are needed to those employees’ compensation or classification. If you have questions concerning this proposed rule, please contact one of our employment attorneys by calling (501) 371-9999.

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