On August 30, 2023, the U.S. Department of Labor proposed revisions to section 13(a)(1) of the Fair Labor Standards Act FLSA), which would result in millions of workers who are now exempt from overtime requirements being entitled to time and one half pay when they work more than 40 hours in a workweek. The DOL proposal would raise the salary test from its current $35,568 level, up to $55,000 as annual salary threshold below which otherwise exempt from overtime workers would receive overtime pay. The proposed revisions are expected to meet with resistance from industry groups who are already voicing concerns about how this will impact their members’ businesses.
The Fair Labor Standards Act (FLSA) requires employers to pay employees the minimum wage (currently $7.25 an hour) for all hours worked, and overtime premium pay of one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. Section 13(a)(1) of the FLSA provides an exemption to the requirement for employees who are “in a bona fide executive, administrative, or professional capacity” (EAP exemption or white-collar employees). In order to fall under the EAP exemption, each of the following tests must be met: (1) the employee must be paid a predetermined and fixed salary not subject to reduction (the salary basis test); (2) the amount of salary paid must meet a minimum specified amount (the salary level test); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties defined by the regulations (the duties test).
The DOL’s proposal would increase minimum exempt salary level to $1,059 per week or $55,068 annually, which is the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, and the highly compensated total annual compensation to $143,988, which is the 85th percentile of full-time salaried workers nationally. The DOL also proposes to adopt a regulatory provision that will automatically update the salary levels to ensure that EAP exemption earnings thresholds “keep pace with changes in the employee pay” and maintains effective in determining exemption status
The DOL argues states that the proposed standard salary level will, in combination with the standard duties test, “better define and delimit which employees are employed in a bona fide EAP capacity.” Unquestionably, the new proposed salary level will allow for fewer lower-paid white-collar employees who perform significant amounts of nonexempt work to be included in the exemption.
The DOL estimates that 3.4 million currently exempt employees who earn at least the current salary level of $684 per week, but less than the proposed standard salary level of $1,059 per week, would receive overtime payments in the first year of the proposal’s enactment. In addition, 248,900 employees who are currently exempt under the highly compensated test would be affected by the proposed increase. The Department estimates the total annualized direct employer costs to be $664 million with a 7% discount rate in the first 10 years.
Pursuant to the Administrative Procedures Act, the DOL will receive written comments on the proposal 60 days after publication in the Federal Registry. Employers are using this opportunity to review their classifications of employees as exempt and non-exempt and how the proposed increase in the minimum salary for EAP white-collar workers would impact their business.
Ballard Spahr regularly defends wage and hour lawsuits and represents employees in DOL investigations and preventatively reviews employer’s classification of employees as exempt or non-exempt from overtime, as well as other wage payment policies and practices to assist clients in complying with state and federal wage and hour laws.