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DOL Announce Long-Awaited Proposal to Raise Exempt Salaries

30 Aug

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Update Applicable to:

All employers who employ white collar exempt workers

What happened?

On August 30, 2023, the Department of Labor announced issuance of the Notice of Proposed Rulemaking (NPRM), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.

What are the details?

The Notice of Proposed Rulemaking (NPRM) suggests a comprehensive update and revision of the regulations established under section 13(a)(1) of the Fair Labor Standards Act. These regulations pertain to the exemption from minimum wage and overtime pay pre-requisites for employees in executive, administrative, and professional roles. The proposed revisions encompass several key changes. These involve a rise in the standard salary level and the annual compensation threshold for highly compensated employees. Additionally, a mechanism for automatic updates is proposed. This mechanism would facilitate the regular adjustment of all thresholds to align with up-to-date earnings data in a prompt and efficient manner.

The proposed rule would guarantee overtime pay for most salaried workers to increase the standard salary level to the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would be $1,059 per week ($55,068 annually) based on current data.

Increase the total annual compensation requirement for highly compensated employees from $107,432 per year to $143,988 per year 

Important Note: The Department is not proposing changes to the standard duties test, consistent with its approach in both the 2016 and 2019 rules. At this time, the Department favors keeping the current standard duties test, which is well known to employers and employees. As long as it is paired with an appropriate salary level requirement, the standard duties test can appropriately distinguish bona fide EAP employees from non-exempt workers.

The proposed regulation aims to achieve the following objectives:

  1. Extend Overtime Protections to Low-Paid Salaried Workers: The proposal seeks to reinstate and extend overtime safeguards to salaried employees with lower incomes. Many of these workers perform tasks alongside hourly employees, often exceeding a 40-hour workweek. However, due to outdated regulations, they currently do not receive time-and-a-half compensation for hours worked beyond 40. The intended salary level adjustment would enhance the likelihood that a larger portion of these low-paid salaried employees benefit from the overtime protections traditionally established by the department’s rules.
  1. Grant Valuable Time Back to Non-Exempt Workers: Through a more precise identification process for exempt executive, administrative, or professional employees, the rule aims to ensure that those who fall outside of these exemptions can enjoy increased time with their families or receive extra compensation for hours worked beyond 40 per week.
  1. Safeguard Against Future Erosion of Overtime Protections: The proposal suggests implementing an automatic salary threshold update every three years to align with current earnings data, thereby preventing the gradual reduction of overtime safeguards and providing enhanced predictability.
  1. Reinstate Overtime Safeguards for U.S. Territories: In the period spanning 2004 to 2019, the department’s regulations upheld a practice where U.S. territories subject to the federal minimum wage also adhered to the overtime salary threshold. The proposed rule intends to reinstate this practice, ensuring that workers in U.S. territories governed by the federal minimum wage receive the same overtime protections as their mainland counterparts.

Once published in the Federal Register, the notice of proposed rulemaking will be open for public input for a span of 60 days. The department will carefully review all received comments before finalizing the rule. To gain further insight into the proposed rule and to understand how to submit comments, employers should refer to the provided resources to learn more about the proposed rule and submit comments once that is open (Link). Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to www.regulations.gov.

Top of Form

For more information, please see the links below:

News Release

Notice of Proposed Rulemaking (NPRM)

Frequently Asked Questions Regarding the Rule

Article 1, Article 2, Article 3, Article 4

What do employers need to do?

Employers should familiarize themselves with the provisions content of the proposed rule. Employers can submit their comments via the link above once the input period is open. A recommended action is for employers to review their budget and staffing, as well as forecast the possible impact that the new rule will have if it is implemented, and salaries have to be increased. Please see Article 4 above, from the law firm Fisher Phillips, for ways to prepare.

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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