Global Compliance Desk – United States
United States: Department of Labor Proposes to Increase Salary Threshold for White Collar Exempt Employees
Recently, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (NPRM) that proposes to increase the salary threshold for white-collar employees in order to maintain their exempt status.
Salary Threshold for White Collar Exempt Employees
The FLSA requires that non-exempt employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than 1.5 times the regular rate of pay for all hours worked over 40 hours in a workweek.
White Collar Exempt Employee – Currently, in accordance with the Fair Labor Standards Act (FLSA) Bona fide administrative, executive, professional, and computer-related professional employees, as well as outside sales employees, are “white collar” exempt employees. This means they are not covered by the minimum wage, overtime, and certain recordkeeping requirements of the law.
In order to qualify for the “white collar” exemptions, each of the following tests must be met:
- 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;
- 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
- The duties test: The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.
Proposed Changes to Salary Threshold
Under the proposed rule, the salary level for the white-collar exemptions to apply will increase from the current $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year).
The rule also proposes automatic increases to the overtime salary threshold every three years to reflect current earnings data. The proposal to increase the salary threshold would effectively revise the “white collar” overtime exemption regulations applicable to executive, administrative, and professional employees.
Salary Threshold for Highly Compensated Employees
At present, a highly compensated employee is an employee who makes $107,432 or more annually and who performs at least one of the duties of an exempt position described above may be classified as exempt from overtime. Some states also have their own criteria for exemptions that must be complied with.
Proposed Changes to Salary Threshold of a Highly Compensated Employee
Under the proposed rule, the employee will have to earn at least $143,988 annually to remain eligible for the highly compensated employee exemption (up from the current annual threshold of $107,432 per year).
Procedural Next Steps
Once the proposal is published in the Federal Register, a comment period will open for at least 60 days, during which time various stakeholders such as industry associations and employers may weigh in with their thoughts, concerns, and questions related to the proposed rule. After taking all comments into account, the DOL will then issue a final rule, likely to become law sometime in 2024.
Employer’s Takeaway – Even though there is a lot of uncertainty as the proposed rule could have significant alteration in the future, employers should be ready if the proposed changes in salary threshold should become law in the near future.
Employers should assess the current feasibility of raising the salaries of certain exempt employees in addition to reviewing their current payroll compliance practices.
