DOL Proposes Rule to Increase Salary Threshold for Exempt Employees

By Community Manager posted 08-31-2023 02:42 PM


A U.S. Department of Labor (DOL) proposal would, among other things, increase the salary threshold for being exempt from overtime rules under the Fair Labor Standards Act (FLSA) for certain types of white-collar jobs. Currently, salaried employees earning $684 a week ($35,568 per year) are exempt. The proposal calls for that salary threshold to rise to $1,059 per week ($55,068 per year), which the DOL estimates would affect more than 3 million workers. 

The DOL’s proposed rulemaking, announced on August 30, 2023, is titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. It can be read here.  

Proposed Changes 

If finalized, the rule would primarily focus on the following changes: 

  • Increase the standard salary level to $1,059 per week and $55,068 annually and the highly compensated employee (HCE) test’s total annual compensation requirement to $143,998. 

  • Apply the standard salary level to territories subject to the federal minimum wage. 

  • Update the special salary levels for American Samoa and the motion picture industry.  

  • Add a provision to automatically update the standard salary level and the HCE annual compensation threshold every three years with current wage data. 

The DOL wants to set the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The HCE annual compensation would be at the 85th percentile nationally.  

The DOL hopes that by setting these higher rates, fewer lower-paid white-collar employees would be exempt from being paid time and a half for working more than 40 hours per week. Once the proposed rulemaking is published in the Federal Register (a date wasn’t specified), it will be open for public comment for 60 days, according to a DOL news release. The department will consider all comments received before publishing a final rule,” the news release states. 

In the Employers Council region, Colorado has had a higher standard salary level than required by federal law since 2021. For 2023, it is $961.54 per week ($50,000 per year.) On January 1, 2024, the salary basis test in Colorado is set for $1,057.69 per week ($55,000 per year), which is $1.31 a week below the federally proposed amount, and on January 1, 2025, it will be increased based on inflation, similar to the DOL proposal. 

Takeaway for Employers 

As many employers have done in Colorado due to state law, the DOL’s proposed rule may prompt many employers across the nation to move some employees to non-exempt status. Employers Council members have access to a whitepaper titled Changing FLSA Exemption Status that may be helpful. Consulting and Enterprise members can receive more help by contacting us with questions. 

Recent History 

The most recent change to the standard salary level was made in 2019, increasing the levels set in 2004. The salary level was changed from $455 to $684 per week, where it stands today. The HCE total annual compensation threshold was also changed from $100,000 to today’s $107,432. 

An earlier rule called for a much bigger change. In 2016, the DOL issued a final rule increasing the standard salary level and provided for regular updating. The 2016 rule would have increased the standard salary level from the 2004 level of $455 to $913 per week and the HCE annual salary from $100,000 to $134,004 per year. It did not go into effect because it was blocked in a suit filed in the federal district court in Texas.   

Many expect legal challenges to the new DOL proposed rules. Some may wonder if they will be blocked by a suit in the same way that they were in 2016. Because the U.S. Court of Appeals for the Fifth Circuit allowed the rules to go into effect in 2019, this may not be the case.