DOL’s Proposed Changes to Minimum Salary FLSA “White Collar” Exemptions

By: Kim Adamson

In August 2023, the U.S. Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking (“NPRM)”) to raise the minimum salary requirements for executive, administrative, and professional exemptions, commonly referred to as “EAP” or “white collar” exemptions. Specifically, the DOL proposes setting the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently, the South). The proposed revisions also include increasing the highly compensated employee (“HCE”) total annual compensation threshold at the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally.  Additionally, the DOL proposes adding an automatic updating mechanism that would allow for the timely and efficient updating of all the earnings thresholds.  The NPRM allowed public comments through November 2023, and the DOL is currently reviewing comments.  It is expected that the DOL may issue a final ruling in April 2024.  However, it is anticipated that the ruling will be challenged and may delay the implementation of the new rule.

The proposed changes will significantly impact how employers pay employees and those entitled to overtime pay and minimum wage exemptions. The DOL estimates that 3.6 million employees currently exempt from overtime would become entitled to overtime protection under the Fair Labor Standards Act (“FLSA”).  To recap, the proposed changes include:

  • Raising the weekly salary for FLSA-exempt white collar or EAP employees by more than 50% from $684 per week (or $35,568 annual salary) to $1,059 per week (or annual salary of $55,068).
  • Increasing the total annual compensation requirements for the HCE exemption from $107,432 to $143,988, an increase of approximately 34%.
  • Implementing automatic updates for all earnings thresholds every three years.

The DOL anticipates the standard salary and duties tests will continue to be utilized in determining exempt status for salaried white-collar EAP employees, which are listed below:

  • Salary basis test – The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
  • Salary level test – The salary paid must meet the minimum specified amount.
  • Duties test – The employee’s job duties must primarily involve EAP duties as defined by the regulations. Job titles, job descriptions, or paying an employee a salary does not determine EAP exemption status.

Under the HCE duties test, the employee’s primary duty must be office or non-manual work, and the HCE must “customarily and regularly” perform at least one of the bona fide exempt duties of executive, administrative, or professional status, as described in the regulations. An HCE who performs exempt duties on an occasional basis does not satisfy these minimum duties requirements.

As we await the final DOL ruling, employers should review their current pay practices and exempt employee classifications to determine how the proposed changes will affect their employees under existing federal, state, city, or local jurisdiction exemption and minimum wage laws that apply to their business locations.  For example, effective January 1, 2024, Colorado’s minimum wage for exempt employees increased to $55,000 annually.  The City & County of Denver’s minimum wage increased to $18.29 per hour, regardless of FLSA designation, job title, or duties, the City of Edgewater’s minimum wage increased to $15.02, and Unincorporated Boulder County’s minimum wage increased to 15.69.

An option for employers to consider who have exempt employees earning more than $684 per week ($35,568 annually) but less than $1,059 per week ($55,068 annually) and satisfy the salary and duties tests may choose to comply with the proposed rule by increasing the employee’s salary to the proposed level or reclassifying employees as non-exempt.