On August 30, 2023, the US Department of Labor announced a Notice of Proposed Rulemaking (NPRM) that could significantly change the "white collar exemptions" to the overtime compensation requirements of the Fair Labor Standards Act (FLSA).
Under current law, by default all employees covered by the FLSA are entitled to overtime pay at the rate of 1.5 times their regular rate of pay for all hours worked in excess of 40 hours in a workweek. However, under the FLSA's "white collar" exemptions, employees who perform certain administrative, executive, computer and/or professional duties and who are paid at least $35,568 per year on a salary basis ($684/week) are exempt from the FLSA's overtime pay requirements. "Highly compensated employees" – those that perform office or non-manual work and at least one of the exempt executive, administrative, or professional duties and are paid on a salary basis – are exempt if their salary is $107,432 or greater.
Under the NPRM, the minimum salary level, which was last updated in 2019, would increase to an annual salary of $55,068 ($1,059/week) or more (the exact amount will be based upon the 35th percentile of full-time salaried workers in the lowest-wage Census region, using data available at the time of the final rule). The minimum salary level for an employee to qualify as exempt under the "highly compensated employee" exemption would increase from $107,432 per year to $143,988 per year or more (again, the exact amount would be based upon the 85th percentile for the highly compensated employee exemption, using data available at the time of the final rule). More significantly, the NPRM provides for automatic increases to these minimum salary levels every three years based upon Census data available at that time. Of note, the NPRM does not include any proposed any changes to the duties tests.
Some states have already increased their minimum salary levels for exempt employees under state laws, and several states would remain above the level proposed under the NPRM. For example, for 2023, the minimum salary requirements for exempt employees in California is $64,4800, in New York is either $55,341 or $58,500 depending upon location, and in Washington is $65,478.40. Other states with minimum salary requirements that are higher than under the FLSA currently, but that would be below the approximately $55,058 proposed by the NPRM, are Alaska ($45,136), Colorado ($50,000), and Maine ($41,410).
Other changes contained in the NPRM include (1) applying the updated salary levels to employees in US territories where the FLSA minimum wage applies (Puerto Rico, Guam, the US Virgin Islands and the CNMI), where the salary level currently remains at $455 per week; and updating the special salary levels for American Samoa and the motion picture industry, which have not been updated since 2004.
While these changes are significant, employers can relax...for now. If history is any indication, the NPRM will very likely undergo some revisions and may face legal battles as well. Once the NPRM is published in the Federal Register, there will be a 60-day public comment period. Impacted employers should consider submitting comments; please reach out to the authors or to your Squire Patton Boggs contact to discuss how we can help voice your comments, answer any questions, or assist with your employment law needs.
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