dollar banknote on white table

Higher Dollar Threshold Proposed to be Considered Exempt under FLSA

On August 30, 2023, the Department of Labor announced issuance of a Notice of Proposed Rulemaking (NPRM) which proposes to update and revise the regulations issued under section 13(a)(1) of the Fair Labor Standards Act implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees.  

Currently, the salary threshold for exempt employees is $684 a week ($35,568 annualized).  The DOL’s proposal, if finalized in its current form, would raise the rate to $1,059 a week ($55,068 annualized) or higher depending on cost-of-living adjustments.  The proposed rule would also automatically update the salary threshold every three years.  Besides the salary test, exempt employees also need to satisfy certain duties requirements and neither the job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption.

The DOL sent its proposed Final Rule to the Office of Information and Regulatory Affairs (OIRA) on March 1, 2024.   Employers can expect to see a Final Rule published in the Federal Register in the coming months, perhaps as early as April 2024 then employers typically have 60 days to determine how to comply before the Final Rule would go into effect.  Employers will not know the exact dollar threshold that must be met for exempt employees until the Final Rule is published, since it will depend upon the most current workforce data available.

The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay of 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.

Employers may have exempt employees who earn less than the proposed amount which may require planning.  If employers have exempt employees who currently earn between $35,568 and $55,068 a year then employers will have to decide whether to raise their salary to meet the new threshold or convert them to non-exempt status.  Should you decide to convert these employees, there are many considerations:

  • how much to increase pay for affected employees
  • how to calculate the “regular rate”
  • how to handle incentives and bonuses
  • implement systems to start tracking their actual hours worked

develop a written communication to each employee about the specific changes to their compensation and what new responsibilities come with the changes (e.g., timekeeping)

provide training to newly reclassified employees and their managers on policies for non-exempt employees such as scheduled hours, overtime approval policies, timekeeping procedures, meal, and rest breaks.

Employers should be aware that some states have similar laws with higher salary thresholds and the higher local standards control.