Here We Go Again: More Proposed Change

By Matthew R. Courtner

As I began to write this article, I was reminded of one of Yogi Berra’s famous sayings, “It’s déjà vu all over again.” It does not feel like it was that long ago that I was writing articles and presenting presentations on the U.S. Department of Labor’s 2016 proposed revisions to the Fair Labor Standard Act’s salary level—the first revision since 2004. Yet here I sit writing a new article about another round of proposed revisions to the FLSA salary level. Here we go for another ride on the merry-go-round!

FLSA Exemptions

Under the FLSA, unless an exemption applies, employers must pay employees overtime wages—one-and-one-half times the regular rate of pay—for all hours worked in excess of forty hours in a workweek. Pertinent here, an employee can be exempt under the FLSA if he or she qualifies for one of the white-collar exemptions—executive, administrative, or professional. To qualify for one of the white-collar exemptions, an employee must currently (1) be paid on a salary basis; (2) receive a minimum salary of $684 per week; and (3) meet the executive, administrative, or professional job duties test. 

The FLSA also exempts highly compensated employees (“HCE”) from the overtime requirements. To qualify for the HCE exemption, an employee must currently earn a minimum annual salary of $107,432 and regularly perform one or more of the exempt job duties identified in the white-collar exemptions. 

Where We Have Been

As many HR Professionals well remember, back in 2016, then President Obama’s DOL finalized a rule increasing the minimum salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). However, only a few weeks before the increase went into effect, the United States District Court for the Eastern District of Texas granted an injunction that stopped the salary level increase from taking effect. See Nevada v. United States Dept., of Labor, 218 F. Supp.3d 520 (E.D. Tex. 2016). 

Shortly after the injunction, President Trump took office in January 2017, and President Trump’s DOL replaced President Obama’s rule with a milder rule. Specifically, effective January 1, 2020, the salary basis level increased from $455 per week ($23,660 annually) to $684 per week ($35,568 annually) for the white-collar exemptions, and the HCE salary threshold increased to $107,432 per year.

Where We Are Headed

On August 30, 2023, President Biden’s DOL released a Notice of Proposed Rulemaking that will again change the minimum salary level for the white-collar exemptions and the HCE exemption. 

Under the proposal, the salary basis level will increase from $684 per week ($35,568 annually) to $1,059 per week ($55,068). This increase is based raising the salary level to the “35th percentile of earnings of full-time salaried works in the lowest-wage Census Region (currently the South).” See DOL FAQ (available at www.dol.gov/agencies/whd/overtime/rulemaking/faqs). 

Further, the DOL proposed increasing the salary threshold for the HCE exemption from $107,432 to $143,988 per year. This increase is based raising the salary level to “the annualized weekly earnings of the 85^th percentile of full-time salaried workers nationally.” Id. 

These proposed salary levels are likely to be even higher when the final rule is implemented. In its notice, the DOL advised that it plans to base the final salary level on the most recent data available. The 2023 data will likely be available when the final rule is implemented, and the 2023 data is likely to be higher than the 2022 data that the current proposal is based upon. 

The DOL lastly seeks to automate future salary increases. President Obama proposed a provision to automatically increase the salary levels every three years, and President Biden has resurrected this proposal. If enacted, the DOL’s proposal will automatically increase the salary level for the white-collar and HCE exemptions every three years. 

The DOL has not proposed any changes to the executive, administrative, and professional job duties test. Nor has the DOL proposed any changes to the rules on nondiscretionary bonuses and incentives counting towards the salary level. 

What’s Next for Employers

With a Notice of Rulemaking, there is a 60-day period for public comment on the proposed changes. Consequently, Employers may submit written comments addressing these proposed changes. 

After the public comment period ends, the DOL will review the comments and finalize its rule. While it is unknown exactly how long that process will take, the period will likely take six-to-nine months. And, once the final rule is announced, the DOL will likely provide at least a 30-to-60-day grace period for employers to prepare for its implementation. Consequently, the earliest the final rule is likely to take effect is summer 2024. 

After a final rule is released, employers can expect a similar trajectory as President Obama’s proposal experienced in 2016. That is, the DOL’s final rule will likely face challenges in federal court just like President Obama’s rule did. Suffice to say, the road that lies ahead may be a lengthy and uncertain road as employers begin considering how they will handle a salary level increase. 

If not before, once the DOL releases the final rule, employers should begin considering how to comply with a rule similar to the rule the DOL proposed on August 30, 2023. Employers will need to consider how to apply the rule to employees who earn between the current salary level of $35,568 and the new salary level set in the final rule. Employers will need to either increase salaries to the minimum weekly salary level to preserve the exemption or convert the employee to a non-exempt employee who will earn overtime for hours worked over forty hours in a workweek. 

It is also a good idea to review the employee’s job duties to ensure that he or she meets the job duties test for the executive, administrative, or professional exemptions. If the employee cannot satisfy the job duties test, then there is no reason to consider whether to increase the employee’s salary or convert the employee to non-exempt. 

Lastly, if the automatic increase is enacted, employers should plan for how to handle a salary level increase every three years. With such automatic increases, the salary level will increase quickly, and employers should plan for the increase now to soften the blow of the next increase. 

Although there is much uncertainty that lies ahead, employers should not wait until the last minute to plan for an increase. Instead, employers should begin planning how they may address the proposed salary level changes and wait for additional information before implementing any changes.