On August 30, 2023, the Wage and Hour Division of the Department of Labor issued a Notice of Proposed Rule Making regarding 29 CFR part 541, which governs compensation for exempt employees under the Fair Labor Standards Act’s (“FLSA”) white-collar exemptions. The Department of Labor’s stated goal, which the contemplated regulations are clearly tailored to accomplish, is to significantly decrease the number of employees who are exempt under the FLSA.
The DOL’s Notice focuses on the minimum salary level for white-collar exempt employees and the total annual compensation level for the highly compensated employee exemption.
If adopted as proposed, the DOL will increase the minimum salary level under the white-collar exemptions from the current $684 per week ($35,568.00 annually) to $1,059 per week ($55,068.00 annually). For reference, the basis of the salary level in the current regulations is set at the 20th percentile of full-time salaried workers and the DOL’s Notice would raise it to the 35th percentile of full-time salaried workers. The DOL estimates that increased threshold would eliminate the white-collar exemptions for approximately 12% of employees who are currently exempt under the white-collar exemptions.
Likewise, for the highly compensated employee exemption, the DOL’s Notice will increase the total annual compensation level from the current $107,432 to $143,988 (from the 80th percentile to the 85th percentile of full-time salaried workers). Per DOL estimates, approximately 250,000 employees, who are only exempt under the highly compensated employee exemption, will lose their exempt status based on this shift.
The DOL has also included an auto-adjustment mechanism for the minimal salary levels. Every three years the minimums will be updated to maintain the 35th percentile salary base and 85th percentile total compensation thresholds. The DOL projects that in ten (10) years, the updating mechanism will push the minimum salary threshold to $1,348 per week and the highly compensated employee exemption threshold to $191,598 per year.
The actual proposed new regulations have not yet been published in the Federal Register. Notably, the notice outlines the significant proposed revisions to the regulations, which implies that there may be additional changes to the regulations that we will not be able to review until the proposed new regulations are published in the Federal Register. Upon publication, the public will have sixty (60) days to submit comments. The regulations, including possibly the revised salary thresholds, will go into effect only sixty (60) days after the Final Rule is published, giving employers a fast turnaround to adjust their pay policies.