Preparing for Expected Changes to Exempt Salary Threshold

As summer looms near, employers of salaried workers would be wise to prepare for anticipated increases to the salary basis threshold for certain categories of exempt employees under the Fair Labor Standards Act (FLSA).

As a reminder, on August 30, 2023, the U.S. Department of Labor (DOL) announced a notice of proposed rulemaking to increase (i) the minimum salary amount required to be paid to executive, administrative, or professional employees, and (ii) the required annual compensation to be paid to “highly compensated employees” in order for these employees to be considered exempt from the FLSA’s federal overtime pay requirements. (Employers should also note that some states may have minimum exempt salary thresholds that are higher than the current or proposed federal minimum.)

Specifically, the proposed rule would increase the minimum salary required to be paid to an executive, administrative, or professional employee in order for that employee to be exempt, from $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually). The DOL also seeks to increase the annualized salary threshold for the exemption for “highly compensated employees,” from the current $107,432 per year to $143,988 per year. Importantly, the aforementioned amounts proposed by the DOL were based on 2022 earnings data and, if implemented, the final rule amounts might be higher than what is currently proposed.

The proposed rule was open for public comment until November 7, 2023. The DOL has not yet issued a final rule, though it is expected sometime in 2024. Assuming the DOL follows a similar timeline as it did while enacting a final rule in 2019, we can predict that a final rule on the exempt salary threshold may come into effect around July 2024. The final rule also may be challenged in the courts, as similar Obama-era rules were, which could prolong enactment and enforcement.

If the final rule goes into effect this summer, employers will need to revisit their compensation strategies for exempt employees earning less than approximately $56,000 per year. Employers have a number of options to ensure compliance with the anticipated increased minimum salary threshold, including keeping employees at their current salary but paying overtime compensation for hours worked over 40 in a given week, increasing the salaries of employees to meet the new threshold, or converting employees to an hourly compensation arrangement. We also encourage employers to treat this change as an opportunity to conduct an internal audit of employee job duties and classifications, to ensure that employees are properly classified as exempt.