Law Alert

August 30, 2023

The federal Department of Labor (DOL) has finally announced the release of its proposed rule to increase the minimum salary required for certain employees to be classified as exempt from minimum wage and overtime. While we don’t usually report on proposed rules because they have a tendency to change—and often the effective date is distant and unknown—we wanted to provide some information given the potential significance of this rule.

Currently, executive, administrative, and professional employees must be paid at least $684 per week ($35,568 per year) to be properly classified as exempt. This grouping of exemptions is often referred to collectively as “EAP.” The proposed rule, if adopted as-is, would increase the salary threshold to require that EAP employees be paid at least $1,059 per week ($55,068 per year) to be classified as exempt.

Currently, employees who are exempt under the highly compensated employee (HCE) exemption, which has its own specific criteria, must be paid at least $107,432 per year. The proposed rule, if adopted as-is, would increase this amount to require that HCE employees be paid at least $143,988 per year to be classified as exempt.

Finally, the proposed rule, if adopted in its current form, would implement automatic updates to the EAP salary level and HCE total annual compensation requirement every three years.

To learn more about the rules for these exemptions, including what duties employees must perform to qualify, see the Federal FLSA White Collar Exemption Guide.

Timing

The proposed rule will likely be published soon and then there will be a 60-day comment period. During that time, the DOL will accept comments (read: suggestions, complaints, arguments) from anyone who would like to submit them.

Once the comment period is closed, the DOL will review the feedback and potentially make changes before publishing the final rule. We don’t know how long that review and revision process will take, though it will likely be at least a few months. The DOL has suggested that these changes could take effect as soon as 60 days after the publication of the final rule.

It’s worth noting that last time the DOL attempted a drastic change to the salary minimums, the rule was thrown out in litigation just weeks before taking effect. We have no way of predicting if that will happen again, but it is likely that the rule change will be litigated.

Impacts

While it may be a bit early to start thinking about the impacts of this rule change, employers that want to maximize planning time should consider the following:

• You may need to reclassify many employees as nonexempt—this will bring the expected administrative hassle.
• If you have exempt employees who make well below the proposed minimum salary (and therefore won’t be getting a raise to bring them up to the new threshold), and they’re regularly working more than 40 hours per week, you’ll need to budget for their overtime pay.
• If you can't afford to pay overtime, you’ll need to redistribute work, find other efficiencies, or potentially alter aspects of your business.
• Employees who go from exempt to nonexempt will need to be trained in the ways of nonexempt employees (e.g., they’ll need to log their time, take lunches and breaks, and observe your overtime policies).

As usual, if a state law requires higher minimum salaries than what is or will be required by the federal rule, the state minimums must be followed.

We'll provide additional information when the final rule is published and will create a number of resources to help employers make the necessary changes as smoothly as possible. If you’d like to review the proposed rule, you can find it here.